NEC-FIDIC Adjudication

1. Volume V Issue No. 3
The Global Leader in Managing Construction Risk
NEC – FIDIC ADJUDICATION
Disclaimer: This article does not constitute advice, legal or
otherwise, and is provided only as general
commentary. Appropriate professional advice should always
be obtained before taking or refraining from taking any
action in relation to such information and/or the application
of applicable law. This article and the materials contained in
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excluded to the fullest extent permitted by law.
David Brodie-Stedman
Senior Vice President & Managing Director
Asia, Middle East and Africa
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Introduction
Adjudication is a procedure for resolving
disputes without resorting to lengthy and
expensive court procedure. It has become
increasingly popular in international
construction contracts as a fast and efficient
means of resolving disputes. Adjudication is
now a statutory requirement in Malaysia, and
Qatar is considering making adjudication
mandatory for its World Cup developments.
Adjudication allows parties to resolve disputes
on an interim basis, thus allowing the works to
continue pending (possible) later litigation or
arbitration. The following article compares
the adjudication provisions in FIDIC’s 1999 Red
Book (“FIDIC”) and NEC 2005 (“NEC”), two
forms of contract used on international
construction projects. NEC’s Option W1
(outside the UK) has been considered in this
review.
By envisaging a three-member Dispute
Adjudication Board (“DAB”), compared to
NEC’s single adjudicator, FIDIC’s DAB can
potentially provide a more diverse set of skills
to consider issues on major projects. Parties
can however make amendments to NEC to
make it more suitable to their particular
project. For example, the London Olympic
Delivery Authority appointed eleven
adjudicators who provided varying areas of
expertise to deal with the anticipated variety
of disputes on this major NEC-based contract.
Both forms consider the adjudicator’s/DAB’s
decision to be binding. If neither party serves a
notice of dissatisfaction of the Adjudicator’s
decision, that decision becomes final.
Nevertheless, the adjudicator’s decision is to
be revised by litigation/arbitration if either
party issues a notice of dissatisfaction to the
other party within a certain time period. The
drafting of the relevant sub-clause of FIDIC has
created an unintended weakness; it has been
argued that by serving a notice of
dissatisfaction, parties may not be bound to
the decision. This error is rectified in the FIDIC
Gold Book.
Besides the adjudicatory role of FIDIC’s DAB,
the parties can jointly refer a matter to the
DAB for its non-binding opinion. This can
provide an opportunity for amicable
settlement, as the opinion gives the parties an
idea of the likely decision of the DAB. A
negative side is that this may result in a
lengthier process by creating an additional
stage in the resolution of a dispute. NEC does
not envisage this role for the adjudicator.
FIDIC also provides an opportunity for
amicable settlement by requiring the
dissatisfied party not to commence arbitration
before fifty six days have passed from serving
the notice of dissatisfaction. However,
anecdotal evidence would suggest that the
parties seldom reach a settlement during this
period and that such requirement may only
delay the dispute resolution process. Under
NEC, the dissatisfied party can commence
arbitration immediately after serving the
notice.
Furthermore, the DAB has eighty four days to
issue its decision, NEC’s adjudicator has four
weeks. FIDIC, therefore, seems to have taken
a slower route and relied on a more traditional
approach, despite one purpose of adjudication
being intended as a means to enable the quick
resolution of disputes.
NEC provides a number of rules which seem to
be beneficial in terms of efficiency and clarity
of the adjudication process. These rules
provide that either party should be aware of
any communication between the adjudicator
and the other party, that the adjudicator
should follow the contractual compensation
event mechanism in its assessment of time
and cost liabilities, and that the adjudicator
can correct any clerical mistakes or
ambiguities in his decision within a specified
period.
NEC also provides that the adjudicator cannot
be called as witness in subsequent
proceedings, a provision that can help create
trust and confidence for the parties in the
adjudication process. In addition, when
referring a dispute to the adjudicator, a
relevant subcontract dispute may also be
referred to the adjudicator at the same time,
which may sometimes be useful for clarifying
the parties’ liabilities. FIDIC is silent in respect
of all these matters.
Adjudication is a fundamental and inseparable
part of NEC. Under FIDIC, adjudication is a
preferred method from which the parties can
choose to depart and give the Engineer its
traditional role. NEC’s approach with its
decision-making process within four weeks
facilitates dealing with disputes as they arise,
ensuring that most, if not all, of the disputes
have been resolved by the completion date.
FIDIC’s approach is reasonably fast, but slower
and more time-consuming than that of NEC.
FIDIC seems however more inclined to give the
parties the opportunity to deal with their
differences on an amicable basis.
With the Government of Abu Dhabi having
adopted adjudication into its conditions of
construction contracts, it is likely that other
emirates, particularly Dubai, will follow suit,
moving towards a more adjudication-friendly
environment. It will however be interesting to
see whether this move will result in a growth
in the use of NEC form of contract in the
country.
Ali Akbar Fard
Associate Director
Hill International Claims Group
United Arab Emirates
Hill International, with 3,800
employees in 100 offices worldwide,
provides program management,
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