Shorter, clear and consistent – The claims/dispute resolution procedure applicable to the FIDIC Plant and Design-Build public procurement contracts in 2018

Order no. 600/2017 issued by the Romanian Ministry of Transportation on 30 May 2017 introduced new particular conditions of contract for the FIDIC Plant and Design-Build public procurement contracts applicable to the investment objectives from the field of transportation road infrastructure of national interest financed by public funds, including a brand new claims/dispute resolution procedure.

 New time bars together with a significant simplification of the claims/dispute resolution procedure by removal of the DAB from such procedure are expected to encourage the faster dispute resolution and to bring more clarity and predictability into the contractual relationship between the Contractor and Employer.

 The new claims/dispute resolution procedure is anticipated to be seen in action in 2018, once the tender procedures based on the new particular conditions of contract introduced by Order no. 600/2017 will be concluded.

 

 

INTRODUCTION

In May 2017[1] the Romanian Ministry of Transportation have taken the opportunity to update the particular conditions of contract applicable to the FIDIC Plant and Design-Build public procurement contracts published in 2011[2] to reflect the lessons learned in Romania and in other jurisdictions worldwide over the past years.

Among the amendments, Order no. 600/2017 offers a reconsidered claims/dispute resolution mechanism, which includes some helpful and much needed revisions to its predecessor, harmonising the various deadlines and stages of this preliminary procedure with the rules and statutory limitation periods provided by Law no. 554/2004 – The law of administrative contentious and the Romanian Civil Code.

The claims/dispute resolution procedure is now much shorter, its total duration is clear and pre-determined, and it cannot be influenced or changed by discretionary behaviour of one of the parties.

Thus, the total duration of the preliminary procedure, calculated from the moment when the Contractor became aware or should have become aware of the event or circumstance giving rise to a claim up to the moment of the referral of the disputes to the Court, cannot exceed 198 days (i.e. approximately 6 months), whilst the previous version of the particular conditions of contract allowed to the total duration of the preliminary procedure up to the referral of the disputes to the Court or Arbitral Tribunal to vary between 593 days (i.e. approximately 1 year and 7 months) and several years, depending by subjective factors like interpretation of the contract’s clauses by the parties, contractual behaviour of the Engineer and Contractor, the time spent by the DAB to issue a decision.

 

Controversial issues regarding, inter alia the preliminary procedure and statutory limitation periods applicable to public procurement contracts based on FIDIC Conditions of Contract[3] and the enforcement of the mandatory DAB decisions by an interim/partial arbitral award[4] are now a matter of history. Order no. 600/2017 provides clear rules and time bars for each and every stage of the claims/dispute resolution procedure and removes the DAB from the contractual mechanism provided by Clause 20 of the FIDIC Plant and Design-Build public procurement contracts.

The clear wording and rules of the new claims/dispute resolution procedure comprised by the particular conditions of contract applicable to the FIDIC Plant and Design-Build public procurement contracts effective as of June 2017 are expected to put to an end the speculative and sometimes even abusive interpretations disseminated within the construction industry and perpetuated so far without legal justification, and to become what it was intended to be since the very inception of FIDIC Conditions of Contract – an effective and cost-efficient tool for avoidance of disputes by amicable settlement.

 

THE NOTICE OF CLAIM

The provisions of Sub-Clause 20.1 [Contractor’s Claims] of the FIDIC Plant and Design-Build public procurement contracts remained unchanged: the Contractor is subject to the same 28 days time bar for notifying the claim, after it “became aware, or should have become aware, of the event or circumstance”.

 Submission of a notice of claim by the Contractor is sufficient to validly initiate the preliminary procedure, not being also necessary to this end the submission of an additional “preliminary complaint” under art. 7(6) of Law no. 554/2004.

It is noteworthy that under the Romanian law, the moment when the Contractor “became aware, or should have become aware, of the event or circumstance” is not a matter of interpretation as in other jurisdictions worldwide. Pursuant to the provisions of art. 7(6) of Law no. 554/2004 the time bar for submission of a notice of claim (preliminary complaint) starts to run as follows:

 “a) from the date of the contract conclusion, in case of the disputes related to its conclusion;

b) from the date of the contract amendment or, as the case may be, from the date of refusal of the request for amendment made by one of the parties, in case of the disputes related to the amendment of the contract;

c) from the date of breach of contractual obligations, in case of the disputes related to the performance of contract;

d) from the date of the expiry of contract duration or, as the case may be, from the occurrence of any other cause that triggers the termination of contractual obligations, in case of the disputes related to the contract termination;

e) from the date when it is ascertained the interpretable nature of a contractual clause, in case of the disputes related to the interpretation of the contract.”

 Failure to give notice within such period of 28 days triggers the loss of the Contractor’s entitlement to compensation.

 

SUBMISSION OF THE FULLY DETAILED CLAIM

The Contractor must submit to the Engineer a fully detailed claim, including full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed, within 42 days “after the Contractor became aware, or should have become aware, of the event or circumstance giving rise to a claim”.

The new claims/dispute resolution procedure does not allow to the Contractor to exceed the 42 days anymore based on its proposal for an extension of the time for submission of the fully detailed claim addressed to the Engineer followed by the approval of the latter.

In this regard the wording of Sub-Clause 20.1 was modified, the phrase „or within such other period as may be proposed by the Contractor and approved by the Engineer” being removed from the particular conditions of contract introduced by Order no. 600/2017.

 

THE ENGINEER’S DETERMINATION

Whenever it receives a fully detailed claim (or any further particulars supporting a previous claim) from the Contractor the Engineer shall consult with each party in an attempt to reach agreement.

If agreement is achieved, both parties shall be obliged to give effect to the agreement.

If agreement is not achieved within 70 days from the receipt of the Contractor’s fully detailed claim (or of any further particulars supporting a previous claim), the Engineer shall make an “impartial determination within a further 14 days (i.e. within 84 days from the receipt of the Contractor’s fully detailed claim), taking due regard of all the relevant circumstances.

In this respect, the Engineer shall respond with approval, or disapproval providing detailed arguments. The Engineer may also request any necessary further details, but shall nevertheless give a response on the principles of claim within 84 days from the receipt of the Contractor’s fully detailed claim (or of any further particulars supporting a previous claim).

In any event, the Engineer shall give notice to both parties of each agreement or “impartial determination” with supporting particulars.

 

THE NOTICE OF DISSATISFACTION

If either party is dissatisfied with the Engineer’s “impartial determination”, then it may, within 30 days after receiving the decision, give notice to the other party of its dissatisfaction.

In a similar manner, if the Engineer fails to give its “impartial determination” within 84 days from the receipt of the Contractor’s fully detailed claim (or of any further particulars supporting a previous claim), then either party may, within 30 days after this period has expired, give notice to the other party of its dissatisfaction.

In either event, the notice of dissatisfaction shall state that it is given under Sub-Clause 20.1 of the relevant contract, and shall set out the matter in dispute and the reason(s) for dissatisfaction.

Whenever no notice of dissatisfaction has been given by either party within 30 days after it received the Engineer’s “impartial determination”, then the determination shall become final and binding for both parties.

If the Engineer fails to give its “impartial determination” within 84 days from the receipt of the Contractor’s fully detailed claim (or of any further particulars supporting a previous claim) and no notice of dissatisfaction has been given by either party within 30 days after the former period has expired it is considered that the claiming party has annulled its claim and the responding party shall be discharged from all liability in connection with the claim.

 

REFERRAL OF DISPUTES TO THE COURT

Within 42 days from the submission of a notice of dissatisfaction under Sub-Clause 20.1 of the relevant contract, the dissatisfied party shall refer the dispute(s) to the Court.

If both parties fail to observe the aforementioned time limit, then:

  • the determination shall become final and binding for both parties; or
  • it is considered that the claiming party has annulled its claim and the responding party shall be discharged from all liability in connection with the claim, as the case may be.

Pursuant to the provisions of Order no. 600/2017, the resolution of disputes resulted from FIDIC Plant and Design-Build public procurement contracts shall be made by the Romanian Courts of Fiscal and Administrative Contentious.

CONCLUDING REMARKS

Beyond any doubt, the reconsidered claims/dispute resolution mechanism introduced by Order no. 600/2017 for FIDIC Plant and Design-Build public procurement contracts represents a big step ahead for the infrastructure construction industry.

The Contractor’s interests are much better safeguarded by a shorter, clear and consistent claims/dispute resolution procedure.

The total duration of the procedure is now predictable and it cannot be influenced or changed by discretionary behaviour of either party.

Moreover, not only did the removal of the DAB from the contractual mechanism provided by Clause 20 of the FIDIC Plant and Design-Build public procurement contracts shorten significantly the claims/dispute resolution procedure, but it also reduced the financial burden of the Contractor by removing the significant costs related to the appointment of the DAB, referral and presentation of the disputes before the DAB.

 Under these circumstances, the new claims/dispute resolution procedure introduced by Order 600/2017 is indeed an example of best practices, which must be taken into consideration by the Romanian Ministry of Regional Development, Public Administration and European Funds at the issuance of the new national forms of public procurement contracts for the investment objectives financed by public funds, which are intended to replace the FIDIC Conditions of Contract in Romania in the near future, and are currently under public consultation.

 

[1] Order no. 600/2017 for the amendment of annex no. 1 of the Ministry of Transportation and Infrastructure’s Order no. 146/2011 regarding the approval of particular conditions of contract for plant and design build, and for building and engineering works designed by the employer of the International Federation of Consulting Engineers (FIDIC) for the investment objectives from the field of transportation road infrastructure of national interest financed by public funds, issued by the Ministry of Transportation on 13 May 2017, effective as of 13 June 2017

[2] Order no. 146/2011 regarding the approval of particular conditions of contract for plant and design build, and for building and engineering works designed by the employer of the International Federation of Consulting Engineers (FIDIC) for the investment objectives from the field of transportation road infrastructure of national interest financed by public funds, issued by the Ministry of Transportation and Infrastructure on 1 March 2011, effective as of 17 March 2011

[3] For details please refer to R.C. Rugină, “The Romanian public procurement contracts based on FIDIC Conditions of Contract – Which preliminary procedure?, www.juridice.ro, 2017

[4] For details please refer to V.M. Ciobanu, C. Vasile, “Considerations regarding the possibility to enforce a binding but not final DAB decision by an interim or partial arbitral award analysed from the perspective of the Romanian procedure law”, www.juridice.ro, 2011

 

Răzvan Cristian RUGINĂ