The theme of reconciliation without recourse to formal dispute proceedings runs throughout the new contracts, with the engineer taking a major role. To set the tone, the new sub-clause 3.7 is named ‘Agreement or Determination’, which reflects the engineer’s positive obligation to encourage the agreement of claims. Sub-clause 3.7 requires the engineer to promote discussions between the parties in an attempt to reach an agreement, and envisages the engineer having an active role in the reconciliation process.
At sub-clause 3.7.1, the engineer must allow time and promptly consult with the parties – jointly or separately – and encourage discussion. The main cause of formal disputes in this region, and around the world, is lack of communication, and an increased emphasis on dialogue will have a positive impact.
In the FIDIC 1999 contract, determinations only related to claims; however, in the 2017 version, the Agreement and Determination aspect of sub-clause 3.7 also applies to measurement of the works, rates and prices, variations, extension of time (EOT) and adjustments of the contract price and schedule of payments, daywork, amount to be paid for plant and materials off-site, amounts not certified in the interim payment certificate (IPC), and disagreement as to the cause of a defect.
If the engineer fails to make a determination within the stated time limits, then they will be deemed to have rejected the claim, with the result that the claim can be referred by either party to the dispute avoidance or adjudication board.
In the Agreement and Determination process, the engineer must carry out their duties neutrally, and are not deemed to be acting on behalf of the employer. According to the FIDIC drafting committee, the word ‘neutrally’ in this context is not to be understood as meaning ‘impartial’ or ‘independent’. Given that the term has not been defined, it will no doubt become the subject of contract negotiations and discussions. The amendments to the Agreement and Determination process do represent a positive step forward. However, tension with respect to the impartiality of the engineer will remain. In the 1999 Red Book at sub-clause 3.5 (Determinations), the engineer was under a contractual duty to exercise “fair determination”. This term was often subject to conjecture, and represented one of the most challenging aspects of the engineer’s role, which entailed acting as employer’s agent, but also as an independent consultant to both the employer and contractor.
The 2017 conditions at sub-clause 3.7 force the engineer to have a more active role in encouraging the parties to reach an agreement, but the engineer must ultimately make a fair determination of the matter or claim. However, this is given the context that the engineer is no longer deemed to act for the employer when carrying out their duties under the determination provisions. So, this should promote increased confidence that a matter or claim will be considered from a more balanced basis than in the previous contract.
Construction projects in the Middle East still largely use the 1987 and 1999 versions of the FIDIC contracts, and it will take time for the new contracts to be operated. It will also require employers and developers to embrace the changes, and use them as their standard form of contract.
FIDIC strongly recommends in the guidance notes that all drafters should pay due regard to its Five Golden Principles, and ensure that any modifications to the conditions of contract are limited to those necessary to comply with the applicable law. The organisation stresses that modifications should not change the fair and balanced character of the FIDIC contract, and that the contract should remain “recognisable as a FIDIC contract”. It will be interesting to see if employers and developers in this region adhere to this advice.
The amended role of the engineer should be welcomed by parties; however, as with any new contract, practical questions remain. Will parties be prepared to commit the additional resources needed for a more prescriptive and complex claims resolution, and will such provisions assist in resolving claims more quickly – or will the complexity will lead to more claims? Will employers allow increased neutrality of the engineer in the Determination process?
In my opinion, FIDIC’s changes to the role of the engineer should be welcomed, and while the regional construction industry may take time to react to new contracts – in the interim, parties might continue to use the old forms – change will come.