Security Of Payment Under FIDIC Contracts: More Secure, For Now

The High Court of Singapore recently handed down an important judgment in relation to the enforceability of Dispute Adjudication Board (DAB) decisions under the FIDIC forms of contract.1 This topic has long attracted attention in international construction circles, and in 2011 was the subject of a decision by the Singapore Court of Appeal. The 2014 judgment, which follows the approach taken by the Court of Appeal in 2011, provides welcome clarity on the way in which, in Singapore at least, DAB decisions under FIDIC contracts may be enforced.

"Pay now, argue later"

In his judgment, Justice Vinodh Coomaraswamy focused on one of the key concerns of the construction industry: security of payment. Justice Vinodh Coomaraswamy noted that contractual security of payment mechanisms play a vital role in the industry by promoting cash-flow and protecting vulnerable contractors. In this regard, most construction contracts contain a mechanism which provide for a speedy adjudication of payment disputes, while allowing each party to have such disputes fully and finally decided on the merits at a later date ("pay now, argue later"). The Judge stressed that an essential feature of such adjudication mechanisms is enforceability: to be effective they need to provide successful contractors with "a quick and relatively inexpensive way of compelling a recalcitrant employer to comply with the interim adjudication".2

FIDIC security of payment mechanism

Under the major FIDIC forms of contract (which includes the 1999 Red, Yellow & Silver Books), the adjudication mechanism is set out at clause 20. This allows either the contractor or the employer to refer a dispute (broadly defined) to a one or three member panel of the DAB (as specified in the contract). The DAB is required to give its decision within 84 days of the matter being referred. As disputes can be of any nature and either party may seek enforcement, Justice Vinodh Coomaraswamy noted that the DAB procedure under FIDIC is not solely concerned with security of payment, but nonetheless that it is one of its key objectives. This is supported by the fact that DAB decisions are immediately binding under clause 20: it requires the employer to "pay now". This is a "substantive contractual right".3 Clause 20 also deals with the enforcement of DAB decisions; however, it is in this area that difficulties arise, as were acutely felt in the case.

The central problem with enforcement under clause 20 lies in the fact...