11.5. CLAIMS, DISPUTES RESOLUTION BOARD (ICB)
Clause 13 of the Conditions of Contract sets out the process associated with issuance of Variation Orders. Variation Orders are initiated either by the Engineer (through an instruction or by a request) or by the Contractor through a Value Engineering proposal. By implication therefore, any change to the work which is not initiated as a Variation Order (under Cl 13) must be processed as a Claim, and if not resolved as a Claim, then as a Dispute. It is important to recognise that Claims can be initiated either by Contractor or by Employer, for deratil refer▬►FIDIC, Multilateral Development Bank Harmonized Edition March 2006, Clause 13: VARIATIONS AND ADJUSTMENTS.
Accordingly, any issue which the Contractor (or Employer) wishes to initiate which is not a Variation under Cl 13 must follow the procedures and time frame as set out in Cl 20 of the Conditions of Contract. The following is a brief summary of the requirements of Cl 20, for details please refer▬►FIDIC, Multilateral Development Bank Harmonized Edition March 2006, Clause 20: CLAIMS,DISPUTES AND ARBITRATION, Sub-Clause-20.1: Contractor’s Claims:
13.0 Variations and Adjustments
13.1 Right to Vary
Variations may be initiated by the Engineer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal. The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Engineer stating (with supporting particulars) that (i) the Contractor cannot readily obtain the Goods required for the Variation, or (ii) such 40 © FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted.
Variation triggers a substantial change in the sequence or progress of the Works. Upon receiving this notice, the Engineer shall cancel, confirm or vary the instruction.
Each Variation may include:
13.2 Value Engineering
The Contractor may, at any time, submit to the Engineer a written proposal which (in the Contractor’s opinion) will, if adopted, (i) accelerate completion, (ii) reduce the cost to the Employer of executing, maintaining or operating the Works, (iii) improve the efficiency or value to the Employer of the completed Works, or (iv) otherwise be of benefit to the Employer.
The proposal shall be prepared at the cost of the Contractor and shall include the items listed in Sub-Clause 13.3 [ Variation Procedure ].
If a proposal, which is approved by the Engineer, includes a change in the design of part of the Permanent Works, then unless otherwise agreed by both Parties:
-
the Contractor shall design this part,
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sub-paragraphs (a) to (d) of Sub-Clause 4.1 [ Contractor’s General Obligations ]
shall apply, and
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if this change results in a reduction in the contract value of this part, the Engineer shall proceed in accordance with Sub-Clause 3.5 [ Determinations ] to agree or determine a fee, which shall be included in the Contract Price. This fee shall be half (50%) of the difference between the following amounts:
- such reduction in contract value, resulting from the change, excluding adjustments under Sub-Clause 13.7 [ Adjustments for Changes in Legislation ] and Sub-Clause 13.8 [ Adjustments for Changes in Cost ], and
- the reduction (if any) in the value to the Employer of the varied works, taking account of any reductions in quality, anticipated life or operational efficiencies. However, if amount (i) is less than amount (ii), there shall not be a fee.
13.3 Variation Procedure
If the Engineer requests a proposal, prior to instructing a Variation, the Contractor shall respond in writing as soon as practicable, either by giving reasons why he cannot comply (if this is the case) or by submitting:
13.4 Payment in Applicable
If the Contract provides for payment of the Contract Price in more than one currency, Currencies then whenever an adjustment is agreed, approved or determined as stated above, the amount payable in each of the applicable currencies shall be specified. For this purpose, reference shall be made to the actual or expected currency proportions of the Cost of the varied work, and to the proportions of various currencies specified for payment of the Contract Price.
13.5 Provisional Sums
Each Provisional Sum shall only be used, in whole or in part, in accordance with the Engineer’s instructions, and the Contract Price shall be adjusted accordingly. The total sum paid to the Contractor shall include only such amounts, for the work, supplies or services to which the Provisional Sum relates, as the Engineer shall have instructed. For each Provisional Sum, the Engineer may instruct:
13.6 Daywork
For work of a minor or incidental nature, the Engineer may instruct that a Variation shall be executed on a daywork basis. The work shall then be valued in accordance with the Daywork Schedule included in the Contract, and the following procedure shall apply. If a Daywork Schedule is not included in the Contract, this Sub-Clause shall not apply.
Before ordering Goods for the work, the Contractor shall submit quotations to the 42 © FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions.
For participating development bank financed contract use only. No reproduction of this document is permitted. Engineer. When applying for payment, the Contractor shall submit invoices, vouchers and accounts or receipts for any Goods.
Except for any items for which the Daywork Schedule specifies that payment is not due, the Contractor shall deliver each day to the Engineer accurate statements in duplicate which shall include the following details of the resources used in executing the previous day’s work:
13.7 Adjustments for Changes in Legislation
The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official governmental interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.
If the Contractor suffers (or will suffer) delay and/or incurs (or will incur) additional Cost as a result of these changes in the Laws or in such interpretations, made after the Base Date, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [ Contractor’s Claims ] to:
13.8 Adjustments for Changes in Cost
In this Sub-Clause, “table of adjustment data” means the completed table of adjustment data for local and foreign currencies included in the Schedules. If there is no such table of adjustment data, this Sub-Clause shall not apply. If this Sub-Clause applies, the amounts payable to the Contractor shall be adjusted for rises or falls in the cost of labour, Goods and other inputs to the Works, by the addition or deduction of the amounts determined by the formulae prescribed in this Sub-Clause. To the extent that full compensation for any rise or fall in Costs is not covered by the provisions of this or other Clauses, the Accepted Contract Amount shall be deemed to have included amounts to cover the contingency of other rises and falls in costs.
© FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions.
For participating development bank financed contract use only. No reproduction of this document is permitted.
The adjustment to be applied to the amount otherwise payable to the Contractor, as valued in accordance with the appropriate Schedule and certified in Payment Certificates, shall be determined from formulae for each of the currencies in which the Contract Price is payable. No adjustment is to be applied to work valued on the basis of Cost or current prices. The formulae shall be of the following general type: Pn = a + b Ln + c En + d Mn + ......
Lo Eo Mo where “Pn” is the adjustment multiplier to be applied to the estimated contract value in the relevant currency of the work carried out in period “n”, this period being a month unless otherwise stated in the Contract Data;
“a” is a fixed coefficient, stated in the relevant table of adjustment data, representing the non-adjustable portion in contractual payments;
“b”, “c”, “d”, … are coefficients representing the estimated proportion of each cost element related to the execution of the Works, as stated in the relevant table of adjustment data; such tabulated cost elements may be indicative of resources such as labour, equipment and materials;
“Ln”, “En”, “Mn”, … are the current cost indices or reference prices for period “n”, expressed in the relevant currency of payment, each of which is applicable to the relevant tabulated cost element on the date 49 days prior to the last day of the period (to which the particular Payment Certificate relates); and
“Lo”, “Eo”, “Mo”, … are the base cost indices or reference prices, expressed in the relevant currency of payment, each of which is applicable to the relevant tabulated cost element on the Base Date.
The cost indices or reference prices stated in the table of adjustment data shall be used. If their source is in doubt, it shall be determined by the Engineer. For this purpose, reference shall be made to the values of the indices at stated dates for the purposes of clarification of the source; although these dates (and thus these values) may not correspond to the base cost indices. In cases where the “currency of index” is not the relevant currency of payment, each index shall be converted into the relevant currency of payment at the selling rate, established by the central bank of the Country, of this relevant currency on the above date for which the index is required to be applicable.
Until such time as each current cost index is available, the Engineer shall determine a provisional index for the issue of Interim Payment Certificates. When a current cost index is available, the adjustment shall be recalculated accordingly. If the Contractor fails to complete the Works within the Time for Completion, adjustment of prices thereafter shall be made using either (i) each index or price applicable on the date 49 days prior to the expiry of the Time for Completion of the Works, or (ii) the current index or price: whichever is more favourable to the Employer. The weightings (coefficients) for each of the factors of cost stated in the table(s) of adjustment data shall only be adjusted if they have been rendered unreasonable, unbalanced or inapplicable, as a result of Variations.
© FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted.
20.0 Claims, Disputes and Arbitration
20.1 Contractor’s Claims
If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.
If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply.
The Contractor shall also submit any other notices which are required by the Contract, and supporting particulars for the claim, all as relevant to such event or circumstance. The Contractor shall keep such contemporary records as may be necessary to substantiate any claim, either on the Site or at another location acceptable to the Engineer. Without admitting the Employer’s liability, the Engineer may, after receiving any notice under this Sub-Clause, monitor the record-keeping and/or instruct the Contractor to keep further contemporary records. The Contractor shall permit the Engineer to inspect all these records, and shall (if instructed) submit copies to the Engineer.
Within 42 days after the Contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, or within such other period as may be proposed by the Contractor and approved by the Engineer, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of © FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted. the basis of the claim and of the extension of time and/or additional payment claimed. If the event or circumstance giving rise to the claim has a continuing effect:
20.2 Appointment of the Dispute Board
Disputes shall be referred to a DB for decision in accordance with Sub-Clause 20.4[ Obtaining Dispute Board’s Decision ]. The Parties shall appoint a DB by the date stated in the Contract Data. The DB shall comprise, as stated in the Contract Data, either one or three suitably qualified persons (“the members”), each of whom shall be fluent in the language for communication defined in the Contract and shall be a professional experienced in the type of construction involved in the Works and with the interpretation of contractual documents. If the number is not so stated and the Parties do not agree otherwise, the DB shall comprise three persons.
If the Parties have not jointly appointed the DB 21 days before the date stated in the Contract Data and the DB is to comprise three persons, each Party shall nominate one member for the approval of the other Party. The first two members shall recommend 66 © FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted. and the Parties shall agree upon the third member, who shall act as chairman. However, if a list of potential members has been agreed by the Parties and is included in the Contract, the members shall be selected from those on the list, other than anyone who is unable or unwilling to accept appointment to the DB.
The agreement between the Parties and either the sole member or each of the three members shall incorporate by reference the General Conditions of Dispute Board Agreement contained in the Appendix to these General Conditions, with such amendments as are agreed between them.
The terms of the remuneration of either the sole member or each of the three members, including the remuneration of any expert whom the DB consults, shall be mutually agreed upon by the Parties when agreeing the terms of appointment. Each Party shall be responsible for paying one-half of this remuneration. If at any time the Parties so agree, they may jointly refer a matter to the DB for it to give its opinion. Neither Party shall consult the DB on any matter without the agreement of the other Party.
If a member declines to act or is unable to act as a result of death, disability, resignation or termination of appointment, a replacement shall be appointed in the same manner as the replaced person was required to have been nominated or agreed upon, as described in this Sub-Clause.
The appointment of any member may be terminated by mutual agreement of both Parties, but not by the Employer or the Contractor acting alone. Unless otherwise agreed by both Parties, the appointment of the DB (including each member) shall expire when the discharge referred to in Sub-Clause 14.12 [ Discharge ] shall have become effective.
20.3 Failure to Agree on the Composition of the Dispute Board
20.4 Obtaining Dispute Board’s Decision
If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to © FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted. any certificate, determination, instruction, opinion or valuation of the Engineer, either Party may refer the dispute in writing to the DB for its decision, with copies to the other Party and the Engineer. Such reference shall state that it is given under this Sub-Clause.
For a DB of three persons, the DB shall be deemed to have received such reference on the date when it is received by the chairman of the DB.
Both Parties shall promptly make available to the DB all such additional information, further access to the Site, and appropriate facilities, as the DB may require for the purposes of making a decision on such dispute. The DB shall be deemed to be not acting as arbitrator(s).
Within 84 days after receiving such reference, or within such other period as may be proposed by the DB and approved by both Parties, the DB shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below.
Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the DB’s decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction and intention to commence arbitration. If the DB fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference, then either Party may, within 28 days after this period has expired, give notice to the other Party of its dissatisfaction and intention to commence arbitration.
In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.7 [ Failure to Comply with Dispute Board’s Decision ] and Sub-Clause 20.8 [ Expiry of Dispute Board’s Appointment ], neither Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the DB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the DB’s decision, then the decision shall become final and binding upon both Parties.
20.5 Amicable Settlement
Where notice of dissatisfaction has been given under Sub-Clause 20.4 above, both Parties shall attempt to settle the dispute amicably before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which a notice of dissatisfaction and intention to commence arbitration was given, even if no attempt at amicable settlement has been made.
20.6 Arbitration
Unless indicated otherwise in the Particular Conditions, any dispute not settled amicably and in respect of which the DB’s decision (if any) has not become final and binding shall be finally settled by arbitration. Unless otherwise agreed by both Parties:
20.7 Failure to Comply with Dispute Board’s Decision
other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6 [ Arbitration ]. Sub-Clause 20.4 [ Obtaining Dispute Board’s Decision ] and Sub-Clause 20.5 [ Amicable Settlement ] shall not apply to this reference.
20.8 Expiry of Dispute Board’s Appointment
a dispute arises between the Parties in connection with, or arising out of, theContract or the execution of the Works and there is no DB in place, whether by reason of the expiry of the DB’s appointment or otherwise:
© FIDIC 2006. MDB Harmonised Conditions of Contract for Construction March 2006 - General Conditions. For participating development bank financed contract use only. No reproduction of this document is permitted.