by Elias Mazloum Senior Contract Administrator DG Jones And Partners Lebanon
The Contracts Department has lately been involved in the preparation and issuance of an Engineer’s Decision under Sub-Clause 67.1 of the FIDIC 4th Edition 1987 (Red Book) on a prestigious project in Lebanon.
The Engineer’s Decision is regarded as the Engineer’s final word on a dispute which becomes final and binding on the Parties unless it is challenged by either Party within the seventy (70) days allowed under the Red Book Contract. If either Party is dissatisfied with any Decision of the Engineer, or if the Engineer fails to give a Decision within the 84 days contractual period, then either party can issue a notice to commence an arbitration within 70 days to finally settle the dispute. However, arbitration proceedings shall not commence unless the parties attempt to settle such dispute amicably. Failure to reach an amicable resolution, arbitration may commence on or after the fifty-sixth (56) day on which said notice was served.
In arbitration, an Engineer’s Decision will be opened up and challenged, so it must be drafted with that in mind: all the relevant facts narrated clearly in date order with the pertinent contract records and provisions referenced to prove them. The Engineer acts as quasi-arbitrator in writing its Decision. Therefore, the objective is to transparently and impartially substantiate, in light of all the relevant facts and circumstances, any entitlement due under the Contract; nothing more and nothing less.
The dispute arising between the contracting parties may be of any kind whatsoever, in connection with or arising out of the Contract and/or execution of the Works during their progress or after completion and may also arise after the repudiation or termination of the Contract. Disputes may arise as a result of a :
The standard FIDIC Sub-Clause 67.1 provides the Engineer with 84 days to give notice of its decision to the Employer and the Contractor from the date the dispute is referred to it. This period may prove to be challenging depending on, among many factors, the complexity, size, and a number of disputed items.
In its Decision, the Contractor simultaneously disputed over a hundred items and requested, during the defect’s liability period, an Engineer’s Decision under Sub-Clause 67.1. This request posed a huge challenge to the Engineer (DGJ) given the fixed contractual time restriction to deliver such a decision. The situation was further exacerbated by the fact that most of the employees that have worked on this project were relocated to other projects.
The disputed items mainly constituted variation orders, deductions, and an extension of time claim with its associated prolongation costs. That significant number of disputed items is mainly the result of:
(a) late submittals by the Contractor of its variations/claims; submitted following the issuance of the Taking Over Certificate;
(b) the pressure on the Engineer, whilst making its determination, to consult with the contracting parties and satisfactorily process a significant number of variations/claims in a relatively short period of time. This process had to occur at the end of the project when DGJ deployed staff are occupied in preparing the Statement at Completion and closing out the Project; and
(c) the last-minute ineffective negotiations between the contracting Parties attempting to reach common grounds. This failure to reach an agreement in turn lead to delays by the Employer to process the Contractor’s variations/claims paving the way for the Contractor to simultaneously declare all unresolved items as disputes.
This unfavorable situation could have been avoided by the Contractor deploying the required staff to intermittently and duly submit its variations/claims at the occurrence of such events rather than submitting them as a single batch at the end of the Project. On the other hand, adhering to and having the proper contractual mechanism to reasonably process the Contractor’s variations/claims from the Engineer’s and the Employer’s end would have also served the situation better.
Early and proactive management of contractor’s variations/claims and prevention of disputes is better than cure.
Another challenging aspect relating to an Engineer’s Decision is the Engineer’s fee for providing such services. At the time of entering into a service agreement with the Employer, it is unknown to the Engineer if an Engineer’s Decision will be required during and/or after the completion of the Works. This raises the question of whether the agreed service fee would include such “out-of-sequence” Engineer Decisions or not. To answer this question and notwithstanding the uncertainty, if such a decision would be required, it is important to determine at what point under the Contract does the Engineer becomes redundant. The answer may well be different for each of the following roles:
Therefore, the Engineer’s roles under the Contract do not cease simultaneously at a certain point in time but at different points in time.
Based on the foregoing, it is prudent for the Engineer to clarify in its service agreement its specific fee allowance when it comes to the preparation and issuance of an Engineer’s Decision. To issue an Engineer’s Decision during the progress of the Works may reasonably be deemed to be included in the Engineer’s fee. However, it may also be reasonably thought that exceptional fees incurred for preparing an Engineer’s Decisions for disputes arising/notified after the Taking Over Certificate, shall be excluded from the service fee and priced separately when and if the need arises.