Online Dispute dispute Resolution resolution in the context of the FIDIC Emerald Book

The first edition of Conditions of Contract for Underground Works ("FIDIC Emerald Book") published by the International Federation of Consulting Engineers ("FIDIC") in 2019 has introduced several concepts targeting the risks specific to contracting tunnelling and underground construction works.

Risk allocation is one of the prime features of all FIDIC Conditions of Contract, meaning that depending on the selected book, allocation as per the general conditions of the contract is done adequately to reflect the division of rights, responsibilities and, consequently, the liabilities between the parties. The FIDIC Emerald Book is expected to facilitate the construction of infrastructure and energy projects with underground elements, by setting the allocation of risks of underground conditions as clearly as possible. However, due to the lack of well-established practices or explanatory guidelines, disputes over the interpretation of the new contractual clauses may arise. An in-debt analysis of the dispute avoidance and resolution mechanisms in the FIDIC Emerald Book might be crucial for successful project implementation.

Classical dispute avoidance and resolution mechanisms

The typical FIDIC dispute avoidance and resolution mechanisms include the procedure in front of the engineer, followed by a procedure before Dispute Avoidance and Adjudication Boards ("DAABs"), and finally the arbitration proceedings conducted according to the Rules of Arbitration of the International Chamber of Commerce (except when otherwise agreed between the parties). DAABs are favoured, among other things, for the higher level of impartiality they offer compared to the procedure in front of the engineer, but also for being more cost and time effective compared to arbitration procedures.

The 2017 edition of FIDIC contracts has shown a strong preference towards standing (permanent) DAABs, which are appointed for the entire term of the project, over the ad hoc DAABs appointed for a single dispute. The same preference may be found in Sub-Clause 21.1 [Constitution of the DAAB] of the General Conditions of the FIDIC Emerald Book, which follows the rules set under the 2017 edition of the FIDIC Conditions of Contract for Plant & Design Build (FIDIC Yellow Book), and provides that the parties will jointly appoint the member(s) of the DAAB within the time stated in the contract data (if not stated, 28 days) after the date the contractor receives the letter of acceptance.

Due to the specific nature of works targeted by the FIDIC Emerald Book, however, parties are advised to pay special attention when drafting the DAAB Agreement (signed between the parties and the DAAB members) and when formulating the conditions referring to the DAAB. Firstly, finding the appropriate and available DAAB members, experienced in tunnelling and underground construction works, may prove challenging. In addition, it is vital to ensure that the DAAB members continuously monitor the contract implementation, and that they are available in real time to provide their expertise and advice to the parties in avoiding disputes and for enabling quick decision-making.

Alternative dispute resolution procedures

Reliance on some elements of online dispute resolution procedures ("ODR") could target some of those issues. ODR refers to a wide range of alternative dispute resolution processes that use the internet and other technologies to facilitate the virtual resolution of disputes between parties to a contract. By relying on more ODR elements in the DAAB procedure, the parties to a FIDIC Emerald contract may benefit from the informality and flexibility inherent in ODR in obtaining prompt and high-level advice from renowned experts. In addition, the parties may agree that all sorts of key notices and documents (such as a Contract Risk Register and a Contract Risk Management Plan, which are meant to quickly identify and address the changing conditions on the ground and associated risks) will be electronically delivered to DAAB members at the same time as to the other parties, and thus ensure the DAAB's full acquaintance with all project peculiarities. In addition, DAABs with more ODR elements may also prove to be more cost-effective, and thus contribute to overcoming one of the obstacles that often ends up preventing the parties from opting for a standing DAAB.

By switching from the acronym DAB (dispute adjudication board) used in FIDIC 1999 editions to DAAB (dispute avoidance and adjudication board) in FIDIC 2017 editions, the FIDIC has committed to transforming the DAAB from a mere forum for the settlement of already existing disputes, to an ongoing discussion panel for directing and assisting the parties in avoiding their disputes. The incorporation of more ODR elements in DAAB contractual procedures may further direct the parties towards the attainment of that goal. Nevertheless, until the creation of a specific, construction-sector-oriented ODR platform on which all interested parties can interact, participate in online meetings and file written submissions electronically, the parties are still encouraged to create their own ODR rules and to incorporate them into the respective DAAB procedures.

author: Luka Veljović