Clause 20.4: Obtaining Dispute Adjudication Board’s Decision

Context and Purpose

Clause 20.4 serves as a procedural framework for referring disputes to the Dispute Adjudication Board (DAB). It outlines the steps and timelines for both Parties and the DAB, aiming to provide a timely and effective dispute resolution mechanism. The clause has significant implications for project management and legal compliance, as it dictates how disputes are to be formally addressed and resolved within the FIDIC framework.

Key Provisions

1. Initiating the Process: After the DAB has been appointed as per Clause 20.2 and Clause 20.3, either Party can refer the dispute in writing to the DAB. This reference must explicitly state that it is made under this Sub-Clause.

2. Receipt by DAB: For a DAB consisting of three persons, the reference is considered received when the chairman of the DAB receives it.

3. Information Sharing: Both Parties must provide all necessary information, site access, and facilities to the DAB for making an informed decision.

   

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4. Timeframe for Decision: The DAB must give its decision within 84 days after receiving the reference or the advance payment as per Clause 6 of the Appendix. This period can be extended if proposed by the DAB and approved by both Parties.

5. Binding Nature: The decision is binding on both Parties, and the Contractor must continue with the Works unless the Contract has been abandoned, repudiated, or terminated.

6. Dissatisfaction and Arbitration: If either Party is dissatisfied with the DAB’s decision, they have 28 days to express this dissatisfaction. Failure to do so makes the decision final and binding.

Interaction with Other Clauses

• Clause 20.2: Appointment of the DAB must have occurred for Clause 20.4 to be activated.

• Clause 20.3: Addresses the scenario where Parties fail to agree on the DAB, which is a prerequisite for invoking Clause 20.4.

• Clause 20.7: Specifies the consequences of failing to comply with the DAB’s decision.

• Clause 20.8: Discusses the expiry of the DAB’s appointment and its implications on ongoing or future disputes.

Interaction with Sub-Clause 20.7: Failure to Comply with Dispute Adjudication Board’s Decision

Clause 20.4 specifies that the DAB’s decision is binding on both Parties. However, if either Party fails to comply with this decision, Sub-Clause 20.7 comes into play. This Sub-Clause outlines the steps that can be taken if a Party does not adhere to the DAB’s decision, potentially leading to arbitration or other legal remedies.

Interaction with Sub-Clause 20.8: Expiry of Dispute Adjudication Board’s Appointment

Clause 20.4 also has a relationship with Sub-Clause 20.8, which deals with the expiry of the DAB’s appointment. If the DAB’s term has expired and a dispute arises or is ongoing, the procedures for reappointment or continuation need to be followed as per Sub-Clause 20.8. This ensures that the dispute resolution process is not left in limbo.

Key Points:

1. Initiation of Dispute: If any dispute arises between the Parties, it can be referred to the Dispute Adjudication Board (DAB) after its appointment as per Clause 20.2 and Clause 20.3.
2. Notification: The party referring the dispute must notify the other Party and the Engineer in writing.
3. DAB’s Role: The DAB is not acting as an arbitrator but is required to give a reasoned decision.
4. Timeframe: The DAB must provide its decision within 84 days after receiving the dispute or the advance payment, whichever is later.
5. Binding Nature: The DAB’s decision is binding unless a notice of dissatisfaction is given within 28 days.

Sample Letters

Scenario 1: Request for DAB Formation

[Your Company’s Letterhead]

[Date]

[Engineer’s Address]

Dear [Engineer’s Name],

Subject: Request for Formation of Dispute Adjudication Board (DAB) under Clause 20.4

We are writing to formally request the formation of a Dispute Adjudication Board (DAB) in accordance with Clause 20.4 of the Contract. We believe that a dispute has arisen concerning [briefly describe the issue], and we consider it necessary to proceed with the DAB process.

Please acknowledge this request and proceed with the necessary steps for the formation of the DAB.

Yours sincerely,
[Your Name]
[Your Position]

cc: [Employer’s Name]

Scenario 2: Submission of Dispute to DAB

[Your Company’s Letterhead]

[Date]

[DAB’s Address]

Dear [DAB’s Name],

Subject: Submission of Dispute to Dispute Adjudication Board (DAB) under Clause 20.4

We hereby submit the following dispute to the DAB in accordance with Clause 20.4 of the Contract: [describe the dispute in detail].

We request that the DAB convene as soon as possible to review and adjudicate this matter.

Yours sincerely,
[Your Name]
[Your Position]

cc: [Engineer’s Name]
[Employer’s Name]

Scenario 3: Expression of Dissatisfaction with DAB Decision

[Your Company’s Letterhead]

[Date]

[Engineer’s Address]

Dear [Engineer’s Name],

Subject: Expression of Dissatisfaction with DAB Decision under Clause 20.4

We are writing to express our dissatisfaction with the decision rendered by the DAB concerning [describe the dispute]. We intend to proceed with arbitration as provided under Clause 20.6 of the Contract.

Please acknowledge receipt of this letter.

Yours sincerely,
[Your Name]
[Your Position]

cc: [Employer’s Name]
[DAB’s Name]

Checklists

Checklist 1: Proficient Execution and Deployment of Clause 20.4

Task	Responsible Party	Deadline	Status	Notes
Identify the dispute	Contractor/Engineer	ASAP	Pending/Complete	Document the nature of the dispute
Notify the other party of the dispute	Contractor/Engineer	Within 7 days	Pending/Complete	Formal written notice
Form or activate DAB	Both Parties	Within 14 days	Pending/Complete	Refer to Clauses 20.2 and 20.3
Submit dispute to DAB	Contractor/Engineer	Within 28 days	Pending/Complete	Include all relevant documentation
DAB to receive dispute	DAB	Upon submission	Pending/Complete	Acknowledge receipt
Parties to provide information to DAB	Both Parties	As requested by DAB	Pending/Complete	Provide all necessary information
DAB decision	DAB	Within 84 days	Pending/Complete	Decision must be reasoned

Checklist 2: Assist in Applying and Overseeing Clause 20.4

Task	Checkpoint	Verification Method	Responsible Party
Dispute Identification	Has the dispute been clearly identified?	Document review	Contractor/Engineer
DAB Formation	Is the DAB formed or activated?	Meeting minutes	Both Parties
Dispute Submission	Has the dispute been formally submitted to DAB?	Submission receipt	Contractor/Engineer
Information Provision	Have all parties provided necessary information to DAB?	Document checklist	Both Parties
DAB Decision	Has the DAB rendered its decision within 84 days?	DAB’s written decision	DAB

Checklist 3: Guide and Monitor the Execution of Clause 20.4

Step	Action Item	Expected Outcome	Monitoring Method
1	Identify the dispute	Clear understanding of the dispute	Regular project meetings
2	Notify the other party	Formal initiation of dispute resolution process	Written correspondence
3	Form or activate DAB	DAB is ready to adjudicate	Confirmation from both parties
4	Submit dispute to DAB	DAB is informed and begins deliberation	DAB’s acknowledgment
5	Provide information to DAB	DAB has all necessary information	Checklist of documents provided
6	Receive DAB decision	Dispute is resolved or escalated	DAB’s written decision

Flowchart

Detailed Explanation of Each Step in the Flowchart for Clause 20.3

1. Start: Failure to Agree on DAB Appointment
   • Overview: The process begins when the Parties involved in a contract cannot reach an agreement on appointing members to the Dispute Adjudication Board (DAB).
   • Importance: This step is crucial as the DAB plays a key role in resolving disputes that arise during the execution of a contract.
2. Condition Check
   • Overview: This step involves identifying the specific reason for the failure to agree on the DAB appointment. The reasons can vary:
     • a. Not agreeing on a sole DAB member.
     • b. A Party’s failure to nominate a member for a three-person DAB.
     • c. Inability to agree on the third member, who acts as the chairman.
     • d. Failure to appoint a replacement within 42 days if a member cannot serve.
   • Importance: Understanding the exact issue helps in determining the appropriate next steps and ensures that the process adheres to the contractual terms.
3. Appointing Entity Steps In
   • Overview: An external entity or official, predetermined in the contract’s Appendix to Tender, intervenes to resolve the deadlock.
   • Importance: This intervention is a safeguard to ensure that the DAB can be formed even in cases of disagreement, maintaining the dispute resolution mechanism’s integrity.
4. Appointing Entity Consults Both Parties
   • Overview: The appointing entity consults with both Parties to understand their perspectives and requirements before making an appointment.
   • Importance: This consultation is vital for maintaining transparency and fairness in the appointment process.
5. Appointing Entity Appoints DAB Member
   • Overview: Based on the consultations, the appointing entity makes the necessary appointments to the DAB.
   • Importance: This step ensures that the DAB is constituted without bias and is capable of impartially adjudicating disputes.
6. Appointment is Final and Conclusive
   • Overview: The decision made by the appointing entity regarding the DAB members is final and binding on both Parties.
   • Importance: This finality prevents further disputes about the DAB’s composition, allowing the board to function effectively.
7. Each Party Pays Half of Remuneration
   • Overview: Both Parties are equally responsible for the financial remuneration of the appointing entity or official.
   • Importance: Sharing the cost ensures that neither Party bears an undue financial burden and supports the principle of impartiality.
8. End of Process
   • Overview: This marks the completion of the DAB appointment process under Clause 20.3.
   • Importance: Concluding this process allows the DAB to begin its work in resolving disputes, which is essential for the smooth execution of the contract.

Detailed Explanation:

1. Dispute Arises: The process starts when a dispute occurs between the Parties.

2. Refer to DAB?: A decision point where the Parties decide whether to refer the dispute to the Dispute Adjudication Board (DAB) or not.

   • Yes: The process moves to the next step.
   • No: The process jumps to arbitration.

3. Refer Dispute to DAB: If the decision is to refer the dispute to the DAB, the process moves to this step.

4. 84 Days for DAB Decision: The DAB has 84 days to make a decision on the dispute.

5. DAB Decision Received?: A decision point to check if the DAB’s decision has been received.

   • Yes: Move to the next step.
   • No: Proceed to arbitration.

6. Accept Decision?: If the DAB’s decision is received, the Parties decide whether to accept it or not.

   • Yes: The Parties proceed to implement the decision.
   • No: The Parties have 28 days to express their dissatisfaction.

7. 28 Days to Express Dissatisfaction: If either Party is dissatisfied, they have 28 days to express their dissatisfaction.

8. Implement Decision: If the decision is accepted, the Parties proceed to implement it.

9. Continue with Works: If the decision is implemented, the Contractor continues with the Works.

10. Proceed to Arbitration: If there is dissatisfaction and it has been expressed within 28 days, the dispute proceeds to arbitration.

11. Arbitration Process: The process moves to arbitration if dissatisfaction is expressed.

12. End: The process ends either when the decision is implemented and the Works continue, or after the arbitration process is complete.

Frequently Asked Questions (FAQs)

What is the purpose of Clause 20.4?

The purpose of Clause 20.4 is to outline the procedure for referring a dispute to the Dispute Adjudication Board (DAB) and the subsequent steps that must be followed by both Parties.

What is the time frame for the DAB to make a decision?

The DAB has 84 days to make a decision after receiving the dispute reference or the advance payment, whichever is later.

What happens if the DAB fails to make a decision within 84 days?

If the DAB fails to make a decision within the stipulated 84 days, either Party has 28 days to express their dissatisfaction with the DAB’s failure to act.

What is the role of the DAB in Clause 20.4?

The DAB acts as a neutral third party to resolve the dispute. It is important to note that the DAB is not acting as arbitrator(s).

What should the Parties do while waiting for the DAB’s decision?

Both Parties are required to provide all necessary information, access to the Site, and facilities that the DAB may require for making its decision.

Is the DAB’s decision binding?

Yes, the DAB’s decision is binding on both Parties unless a notice of dissatisfaction is given within 28 days after receiving the decision.

What happens if a Party is dissatisfied with the DAB’s decision?

If either Party is dissatisfied, they have 28 days to express their dissatisfaction. The dispute then proceeds to arbitration.

Can a Party proceed to arbitration without expressing dissatisfaction?

No, except as stated in Sub-Clause 20.7 and Sub-Clause 20.8, neither Party can commence arbitration unless a notice of dissatisfaction has been given.

What happens if no notice of dissatisfaction is given within 28 days?

If no notice of dissatisfaction is given by either Party within 28 days after receiving the DAB’s decision, the decision becomes final and binding.

How does Clause 20.4 interact with other clauses like 20.7 and 20.8?

Clause 20.4 is closely related to Sub-Clause 20.7, which deals with the failure to comply with the DAB’s decision, and Sub-Clause 20.8, which addresses the expiry of the DAB’s appointment.

Additional Frequently Asked Questions (FAQs)

What is an arbitration agreement?

An arbitration agreement is a legal contract between two or more parties agreeing to resolve any disputes through arbitration rather than through litigation in court. This agreement can be a standalone contract or a clause within a larger contract. It specifies the rules, venue, and manner in which the arbitration will be conducted, and it is generally binding on all parties involved.

What is the difference between mediation and arbitration?

Both mediation and arbitration are forms of alternative dispute resolution, but they serve different purposes and have different implications:

• Mediation: In mediation, a neutral third party, known as a mediator, facilitates a discussion between the disputing parties to help them reach a mutually agreeable solution. The mediator does not make a decision for the parties but rather assists them in negotiation. Mediation is generally non-binding unless the parties agree to a settlement.

• Arbitration: In arbitration, a neutral third party, known as an arbitrator, hears the evidence and arguments presented by the disputing parties and makes a decision. Unlike mediation, arbitration is usually binding, and the arbitrator’s decision is enforceable by law.

What is binding arbitration?

Binding arbitration is a form of arbitration where the decision made by the arbitrator is final and legally binding on all parties involved. This means that the parties waive their right to a court trial and agree to abide by the arbitrator’s decision. The decision can be enforced in a court of law if necessary.

What is the difference between arbitration and mediation?

While both are alternative dispute resolution methods, the key difference lies in the role of the third-party facilitator and the binding nature of the decision:

• Arbitration: The arbitrator makes a binding decision based on the evidence and arguments presented.

• Mediation: The mediator facilitates discussion and negotiation but does not make a binding decision.

What is an arbitration clause?

An arbitration clause is a section within a contract that specifies that any disputes arising out of the contract will be resolved through arbitration rather than litigation. This clause outlines the rules, venue, and procedures that will be followed in the event of a dispute.

What is arbitration in law?

In law, arbitration is a legal technique for resolving disputes outside the court system. Parties involved in a dispute present their case to a neutral third party, known as an arbitrator, who then makes a decision that is usually binding. Arbitration is often faster, less formal, and less expensive than litigation.