Replacement of the FIDIC Conditions of Contract by new forms of public procurement contracts mandatory for public works – Claims and Disputes

 Răzvan Cristian Rugină

Răzvan Cristian
Rugină

The Government Decision no. 1/2018 issued on 10 January 2018 introduces new general and particular conditions of contract for building works designed by the Employer, as well as for design-build projects, applicable to all the investment objectives financed by public funds of which the total estimated value is equal or exceeds 23,227,215.00 LEI, including the road and railway infrastructure works, replacing, inter alia, the use of public procurement contracts based on FIDIC Conditions of Contract.

 The new conditions of contract bring significant changes to the claims/dispute resolution procedure, with both the Contractor and Employer being required to take a more diligent approach in managing their claims so that to avoid the loss of their entitlement to be compensated by the other party for the delays or damages incurred during the performance of Works.

 INTRODUCTION

Only seven months have passed since the last amendment brought by the Romanian Ministry of Transportation to the public procurement contracts based on FIDIC Conditions of Contract.

In May 2017[1] the said Ministry 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 has offered at that moment a reconsidered claims/dispute resolution mechanism, which included 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 Government Decision no. 1/2018 for the approval of general and particular conditions of contract for certain categories of public procurement contracts related to the investment objectives financed by public funds (“G.D. no. 1/2018”) replaces the former standardised public procurement contracts based on FIDIC Conditions of Contract, previously mandatory for the road and railway infrastructure works only, with new ones conceived by the Romanian authorities (yet inspired by FIDIC), extending in the same time their applicability to all the investment objectives financed by public funds.

G.D. no. 1/2018 amends once again the claims/dispute resolution procedure, changing its stages, time bars, the role and responsibilities of the parties, including the Engineer (now called “Supervisor”), and the court which will have jurisdiction to settle the disputes between the parties.

The new conditions of contract provided by G.D. no. 1/2018 must be used in all the public tender procedures for public works initiated after 11 January 2018.

TOTAL DURATION OF THE CLAIMS/DISPUTE RESOLUTION PROCEDURE

The total duration of the preliminary procedure provided by G.D. no. 1/2018, calculated from the moment when a notice of claim must be served up to the moment of the referral of the disputes to the Arbitral Tribunal is of approximately 210 days (i.e. approximately 7 months).

This duration is a little bit longer than the one of 198 days (i.e. approximately 6 months) provided by Order no. 600/2017, yet significantly shorter than the one provided by Order no. 146/2011, which 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.

THE NOTICE OF CLAIM

In an attempt to achieve balance and reciprocity between the Parties, the procedural mechanism for both the Employer and Contractor to submit claims has been merged into the same Clause 69 of the new conditions of contract.

Both the Employer and Contractor are now subject to the same 30-day time bar for notifying their claim to the other party, sending also a copy to the Supervisor (the former Engineer from the FIDIC contracts).

The time bar for serving a notice of claim starts at the date when the event or circumstance giving rise to the claim occurs, and not when the party “became aware, or should have become aware, of the event or circumstance” as it was provided so far by the former public procurement contracts based on FIDIC Conditions of Contract.

However, if it may prove that it was not aware of the event or circumstance, G.D. no. 1/2018 allows to the Employer to serve its notice of claim in no more than 30 days after it became aware. This possibility is not recognized also for the Contractor.

 Failure to give notice within such period of 30 days triggers the loss of both the Contractor’s and Employer’s entitlement to obtain compensation from the other party.

SUBMISSION OF THE FULLY DETAILED CLAIM

The Contractor or Employer, as the case may be, must submit to the other party 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 30 days after the submission of the notice of claim. Pursuant to the explicit requirements of G.D. no. 1/2018, the claims must be sufficiently detailed and done in such a clear manner “to allow to any individual which is not familiarised with the Contract to read the claim and understand it”.

The 30 days period for submission of the full supporting particulars may be extended only further to the Contractor’s or the Employer’s request, as the case may be, and Supervisor’s approval. Either the Contractor or Employer has the right to submit the full supporting particulars after the expiry of this deadline only if it presents justified reasons for its impossibility to comply with the deadline. Such reasons cannot refer to situations or events under the delaying party’s control or involving the delaying party’s fault.

Failure to submit the fully detailed claim within such period of 30 days triggers the loss of the entitlement to obtain compensation from the other party.

THE SUPERVISOR’S DECISION

Whenever it receives a fully detailed claim (or any further particulars supporting a previous claim) from either party, the Supervisor shall verify: (i) if the contractual requirements regarding the submission and the mandatory content of the claim are met, and (ii) if there is a contractual entitlement based on the sub-clause(s) mentioned within the claim.

Within 30 days after the receipt of the full supporting particulars:

  • In the event that both aforementioned conditions are fulfilled, the Supervisor shall “admit in principle” the claim; or
  • In the event that either condition is not met, the Supervisor shall issue a reasoned “rejection in principle” of the claim.

Whether the Supervisor does not issue a notice regarding the admission or rejection “in principle” of the claim within 30 days after the receipt of the full supporting particulars, it is considered that the claim was “rejected in principle”.

Any notice regarding the admission or rejection “in principle” of the claim, issued by the Supervisor after the expiry of the 30 days period, does not produce any effect.

When the Supervisor “admits in principle” the claim, it is obliged to issue a Decision in no more than 30 days after the admission, by following the two steps set out below:

  • Within 15 days after the “admission in principle” of the claim, or within another term agreed by the Employer and Contractor, the Supervisor shall consult the parties jointly and/or separately in the attempt to reach an agreement.
  • Within 15 days after the consultation period comes to an end, the Supervisor shall issue a reasoned Decision with regards to the elements of the claim on which the parties disagreed only. The Supervisor will be also obliged to issue a Decision if either party or both do not participate to consultations.

Any Decision issued by the Supervisor after the expiry of the 30-day time bar does not produce any effect.

The Supervisor’s Decision is binding for the parties.

However, whenever by its Decision the Supervisor granted an extension of the Time for Completion and either party refuses to accept the Decision by submission of a notice of dissatisfaction, no moratory damages will be applied for the period determined by the Supervisor until the issuance of an agreement or a final binding arbitral decision to the Parties in accordance with Clause 70 [Disputes and Arbitration].

A Decision whereby the Supervisor decided the payment of additional costs to the Contractor is binding and must be executed immediately by the parties for the costs related to the performance of Works only.

If the Employer explicitly or implicitly refuses to pay the amounts granted by the Supervisor’s Decision, and/or the Supervisor explicitly or implicitly refuses to include in the Payment Certificate the amounts granted by itself within the Decision, pursuant to Sub-Clause 38.2 the Contractor may suspend the performance of Works and, after submission of no less than three notices in this regard to the Employer, to terminate the Contract pursuant to Clause 65 [Termination by Contractor].

THE NOTICE OF DISSATISFACTION

Under the new conditions of contract, either party may give notice to the other party of its dissatisfaction in no more than 10 days after:

  • The issuance by the Supervisor of its reasoned rejection “in principle” of the claim.
  • The expiry of the 30-day time bar from the receipt of the full supporting particulars without being given a notice regarding the admission or rejection “in principle” of the claim by the Supervisor.
  • The receipt of the Supervisor’s Decision.
  • The expiry of the 15 days period provided for the issuance of a Decision by the Supervisor, without such Decision being released.
  • The expiry of a 90-day time bar from submission of a Statement in which the Contractor included the works related to the Supervisor’s Decision, unless the Contractor received the related payments.

The notice of dissatisfaction shall state the Sub-Clause under which it is given, and shall set out the matter in dispute and the reason(s) for dissatisfaction.

If the notice of dissatisfaction is given after the expiry of the contractual deadlines established in this regard, the notice is null and void and does not produce any effect.

When no notice of dissatisfaction is given:

  • The parties shall lose their entitlement to receive any extension of the Time for Completion or additional payment for the event or circumstance which is subject to the claim.
  • The Supervisor’s Decision shall become final and binding. If one party refuses to comply with a final and binding Supervisor’s Decision, the other party may refer the refusal to arbitration directly pursuant to the provisions of Clause 70 [Disputes and Arbitration].

REFERRAL OF DISPUTES TO ARBITRATION

Under the new conditions of contract, it is considered that a dispute becomes crystallized at the date when a party submits to the other party a notice of dissatisfaction or, in case of any other disputes for which the submission in advance of a notice of dissatisfaction is not required by the contract, at the date when a party gives notice to the other about the existence of the dispute.

Both parties shall attempt to settle the dispute amicably before the commencement of arbitration, either directly or by using the services of a mediator.

Whenever one party refuses the amicably settlement of a dispute by a mediator and/or the parties fail in their attempt to settle their dispute directly, either party may refer the dispute to arbitration on or after 90 days after the date of the Supervisor’s Decision.

The disputes resulted from or related to the new conditions of contract shall be settled by arbitration, pursuant to the rules of arbitration proceedings of the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania.

CONCLUDING REMARKS

The changes bring by G.D. no. 1/2018 are substantial and will certainly have a wide-reaching impact on those in the industry.

 Of the most significance is the increased emphasis on dispute resolution process and procedure. The claims/dispute resolution procedure provided by Clauses 69 and 70 is excessively detailed and, in certain points, may prove difficult to be understood even by the seasoned consultants due to the abundance of details and its unclear wording.

Whilst the rationale to re-balance risks between the parties by encouraging reciprocity in the claims procedure will be welcomed by the industry and in particular by the contractors, these changes will no doubt place a greater administrative burden on the parties.

This burden would be compensated to some extent by the removal of the DAB from the contractual mechanism for settlement of disputes provided by G.D. no. 1/2018.

Even though the role and advantages of a DAB in construction claims are undisputable, it is also self-evident that the removal of the DAB shortens significantly the claims/dispute resolution procedure, and it reduces the financial burden of the contractors by removing the significant costs related to the appointment of the DAB, referral and presentation of the disputes before the DAB.

Last but not least, it is noteworthy that the reconsidered claims/dispute resolution mechanism provided by G.D. no. 1/2018 remains consistent with the rules and statutory limitation periods provided by Law no. 554/2004 – The law of administrative contentious and the Romanian Civil Code, the contractors’ interests and entitlements resulting from these types of contracts being safeguarded accordingly.

 



[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