The New FIDIC Yellow Book Dispute Resolution Procedure: Part 1 - the Proposed New Dispute Resolution Mechanism

Introduction

In December 2016, FIDIC presented a pre-release version of its second edition of Conditions of Contracts for Plant and Design Build ("the Proposed 2017 Yellow Book") which is due to be published during the course of 2017.1 As expected, FIDIC has made substantial amendments to the dispute resolution provisions in the 1999 Yellow Book, and it has addressed the provisions relating to "binding but not-final" Dispute Adjudication Board ("DAB") decisions which have been the cause of persistent dispute since the 1999 Yellow Book was released.

However, rather than scale back following the controversy caused by the binding but not-final DAB decision, and the severe consequences to contractors that have in many instances resulted, FIDIC has chosen to affirm this direction. The Proposed 2017 Yellow Book therefore retains the same core structure of the DAB as a mandatory pre-condition to arbitration, including that non-final DAB decisions must be promptly complied with, and it has expanded this concept through the inclusion of a similar mandatory procedure of binding but not-final Engineer determinations.

The Proposed 2017 Yellow Book offers a refurbished dispute resolution mechanism, which includes some helpful and much needed revisions to its predecessor, and introduces some useful new provisions. It is an ambitious dispute platform and will, without question, be subject to dispute and debate. At its best, it offers both parties the ability to obtain fast and inexpensive relief, with three tiers of binding determinations designed to prevent the need for arbitration. At its worst, it places two-tiers of mandatory determinations in the way before a party can begin to obtain a final binding decision in arbitration.

Parties will need to think carefully about whether a three-tiered system of determinations is suitable for their needs. Key issues are whether or not these provisions do in fact offer the system of relief promised, including how non-final determinations of the Engineer and DAB are likely to be treated in the jurisdiction that the contract is based as well as under the governing law of the contract, and attempting so far as possible to agree in advance between the Parties and Engineer as to how this mechanism will work.

This paper will address the Proposed 2017 Yellow Book dispute resolution provisions in two parts, with Part 1 included in this edition of International Quarterly, and Part 2 to be published in the next edition. The parts are as follows:

Part 1 will set out the key provisions of the proposed new dispute resolution mechanism in the 2017 Yellow Book, and assess these against the 1999 Yellow Book provisions.

Part 2 will address the merits of including a DAB, and Engineer's determinations in their proposed new form, as a pre-condition to arbitration.

Part 1 – the proposed new dispute resolution mechanism

Background

The dispute mechanism in the Proposed 2017 Yellow Book follows on from a worldwide trend of promoting dispute avoidance over arbitration.

The 1999 Yellow Book introduced the now infamous Dispute Adjudication Board into its contracts for the first time, which replaced the Engineer's binding decision in the 1987 FIDIC Conditions of Contract as a pre-condition to arbitration. The 1999 Yellow Book still requires the Engineer to make a determination as the first step in the claims process, albeit under a reduced timescale.

In the 2008 Gold Book, FIDIC expanded the role of the DAB further by defining it as a Dispute Avoidance / Adjudication Board, and including a new clause 20.4 "Avoidance of Disputes" which permits the parties to agree to request that the DAB provide informal assistance with any issue or disagreement between the parties, which shall not bind either party should they proceed to obtain a formal determination.

The Proposed 2017 Yellow Book goes further...