The dispute between the participants in the investment process is not unusual. Regardless of the quality of the contract and the level of collateral established, the investor may anticipate to scope a dispute with the contractor at any stage. However, FIDIC’s contractual templates contain procedures that may reduce this risk.
Good investment preparation
The investor may take action to mitigate the hazard of dispute during the preparation phase of the investment, including by:
- careful preparation of the papers underlying the implementation of the contract (project, PFU, etc.),
- verification of the offers of economical operators,
- a good deal,
- a clear hazard sharing between the parties.
However, construction investments are delicate to the impact of many factors, including those that are independent of the parties, specified as changes in material prices, weather conditions and labour supply. It all makes the full elimination of the hazard of dispute between the parties is not possible.
The author of the contract should not search to unduly limit the anticipation of claims or disputes, but should plan contractual procedures that guarantee efficient exchange of information on the existence of claims and let the parties to resolve disputes at the earliest possible stage. This will prevent escalation and offset the negative impact of disputes on investment.
The proposal for specified procedures includes FIDIC contractual standards, which we will describe on the example of Contract Terms for Construction.
FIDIC claims
A organization that considers that it has a claim for payment, an extension of time to complete or extend the period for reporting defects (either on the basis of a contract clause or for another reason) should officially inform the engineer (notice) erstwhile describing the underlying event (subclause 20.1, 20.2).
The general conditions supply for a 28-day deadline for the submission of a claim notification. The time limit shall run from the date on which the organization found out or should have known of the event on which the claim was based. A breach of that period shall consequence in the release of the another party's liability in relation to the event or the circumstances underlying the claim in question. In another words, failure to make a claim notification within the time limit shall consequence in the expiry of the claim. The admissibility of specified a contractual reservation raises a number of doubts under Polish law. However, the current case law of the ultimate Court accepts the reserving in the contract of time periods for the filing of claims, the exceeding of which results in their expiry (time limits)[1].
Preparation of the claim
The organization that prepares the claim should give peculiar care to paper the circumstances which justify it. It must be submitted to the engineer for inspection and (if necessary) supplemented on request (subclause 20.2.3). The documentation should confirm the merits of the claim, including in peculiar the existence of a causal link between the event and the claim as a claim. If the claim is related to a change of schedule, the impact on the work agenda of the event should be documented[2].
The culmination of the preparation of the claim is the submission of a full detailed claim (subclause 20.2.4). The organization making the claim shall submit it to the engineer within 84 days of the date of the event giving emergence to the claim or the date on which the organization was aware of the event or should have known (unless a different date is agreed with the engineer).
However, a claim event may affect the performance of the contract besides after the expiry of the time limits indicated in the sub-clauses 20.2.1 and 20.2.4. The organization shall then submit a transitional claim at monthly intervals until the effects of the event resulting from the claim have ceased.
Then there is simply a full detailed claim (final), indicating the full value of the claim.
Settlement of claims
With a full detailed claim, the engineer follows the rules set out in sub-clause 3.7. Maintaining neutrality, the engineer should discuss with the parties (together or separately). akin day-to-day negotiation of claims submitted by the parties to the contract is simply a typical event within almost all construction investment. It is worth that the agreement should include regulations allowing for the quickest possible current submission and settlement of claims between the parties. An attractive component of the FIDIC procedure is the participation of an engineer, who supports the parties in making binding arrangements under sub-clause 3.7.
Discussions between the parties may end with an agreement. The parties may, for example, agree on what part of the additional remuneration the contracting organization agrees to pay the contractor. If the parties are incapable to agree, the engineer should make a fair determination, i.e. a decision on the claim. Taking into account all the circumstances, including the data and papers provided by the claimant, The engineer should find whether and to what degree it is justified (subclause 3.7.2). The word engineer is binding on the parties.
Notification of discontent with the engineering designation
Since the real client of the engineer is the ordering alternatively than the contractor, the contractors have concerns about his impartiality and objectivity. Moreover, these fears are frequently justified. FIDIC procedures search to balance the interests of the parties and keep a contractual balance. Therefore, the terms issued by the engineer are binding, but not definitive.
If either organization considers that the name of an engineer is incorrect, it may notify the another organization of its discontent with (all or part) designation of an engineer. Notification of discontent is simply a form of contractual complaint for the designation of an engineer. If the organization fails to submit it within the time limit resulting from the contract (28 days in General Conditions), the determination becomes final and binding.
As far as the scope of the notification of discontent is concerned, the parties to the agreement are in dispute and proceed further on the basis of whether and how they have modified Clause 21 [Proory and Arbitration].
Independent experts
Contracts tailor made legal transactions, the parties frequently usage alternate methods of early settlement of disputes, specified as the independent expert's decision. The proposal for a formalised procedure for the resolution of independent experts includes clause 21 of the Contract Terms. In this procedure, the claim shall be examined by the Commission for the Avoidance of Disputes and Settlement (the alleged CUSiR) established by agreement of the parties, which shall consist of members (experts) selected by the parties. These are most frequently engineers with appropriate method cognition to enable them to measure claims and engineering terms. The decisions of the CSO shall be binding on the parties. KUSiR is not an arbitration court, however, and its decisions are not of the nature of an arbitration court judgement and cannot service as grounds for execution.
The submission of the dispute to the CSO is simply a method of amicable and alternate solution to the dispute. The Parties may do so during the implementation of the investment. The recourse to external method knowledge, nonsubjective experts with a reputation and trust of both parties may prevent further escalation of the conflict. In this way, 1 of the parties can avoid withdrawal from the contract, interruption of the investment and severe financial consequences (for each party). The decisions of the CSO are not enforceable by enforcement, which does not mean that the organization is not liable in the event of failure of specified a decision. Failure to comply with the KUSiR decision constitutes an inappropriate performance of the contract and a basis for compensation.[3]
Proceedings before the CSO are a legal condition for referring the case to arbitration or to a common court (subclause 21.6). This means that the initiation of arbitration/court proceedings with the omission of KUSiR makes the action premature. Judicial or arbitration proceedings stay reserved for resolving only disputes which have not been resolved at lower levels[4].
Golden regulation No. 5
The Conciliation Commission is specified an crucial institution for FIDIC contracts that 1 of the 5 Golden Principles (FIDIC Golden Principles) has been dedicated to KUSiR. In accordance with Golden regulation 5, any dispute should be referred first to the peacekeeping committee. At the same time, it is 1 of the most frequently broken Golden Rules.
It is common practice to draw up peculiar Terms and Conditions to resign from the CUSiR and to surrender all disputes to the arbitration or the general court, but for amicable methods. From the point of view of the reality of the implementation of complex investment processes, this should be assessed negatively.
Alternative Dispute Resolution
The usage of alternate Dispute Resolution (ADR), including in peculiar those amicable (such as negotiations, mediation or conciliation) is hard to overestimate erstwhile de-escalating the tensions between the contractor and the procurer and in terms of the good investment[5]. The choice of the dispute resolution method depends on the will of the parties and the subject substance of the dispute. The Parties may opt for a single solution in the agreement, but nothing prevents the usage of another ADR method, if this is justified by the content of the dispute and the "ambiguity" between the parties.
However, it seems essential that objectivity and the absence of conflict of interest of those acting as mediator or concillator should not rise any doubt. They should be persons whose competence and ability to realize the substance of the dispute are undisputed. Together with a well-written agreement, this increases the chances of resolving the dispute amicably and avoids litigation before a general court or arbitration.
[1]. See Paweł Pietkiewicz, Enforcement of decisions of the Conciliation Commission in FIDIC Agreements.
[2]. See Standardization Commission for the Catalogue of Implementation Standards under Michał Skorupski, Investment Implementation Standards, 2nd Edition 2021, Association of Advisors and Experts Engineers under Michał Skorupski, Standard 36 Plant Management, p. 98.
[3]. E-Leviathan Arbitration Review, No. 1(1)/ 2010, p. 28.
[4]. judgement of the ultimate Court of 19 March 2015, IV CSK 443/14.
[5]. See Standardization Commission for the Catalogue of Standards of Implementation of Investments under Michał Skorupski, Investment Implementation Standards, II Edition 2021, Association of Advisors and Experts Engineers under Michał Skorupski, Standard 38 alternate Dispute Resolution (ADR), p. 98.
