Clause 20.5 (1999): Amicable Settlement 🆚 Clause 21.3 (2017): Avoidance of Disputes

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2 years ago

1️⃣ Purpose of the Clause

Let’s start by understanding why these clauses even exist.

🧾 Clause 20.5 (1999) – The “Cool-Down” Clause

This clause was designed as a mandatory cooling-off period. Once a party says, “I don’t accept the DAB’s decision” (by issuing a Notice of Dissatisfaction), FIDIC tells both parties, “Alright, pause. Take 56 days to try and talk it out before jumping into arbitration.”

It’s a good-faith nudge toward negotiation. But here’s the catch—it’s not enforced. Even if the parties just sit there and do nothing for 56 days, they’re free to proceed to arbitration. So while it sounds cooperative, it’s more of a procedural speed bump than a genuine attempt at resolution.

🤝 Clause 21.3 (2017) – The “Let’s Fix This Early” Clause

Now this is where things get interesting. FIDIC took a huge leap forward in 2017 with a major mindset shift. Instead of waiting until a full-blown dispute erupts, Clause 21.3 brings in the DAAB (Dispute Avoidance/Adjudication Board) before things go off the rails.

Think of it like relationship counseling. The DAAB isn’t just there for the messy breakup (arbitration)—they’re there to help keep the relationship on track from the start.

👉 In short:

1999: “Talk it out, if you feel like it.”
2017: “Let’s not even get to the fighting stage.”

2️⃣ Clause Breakdown – What’s Actually Written?

📜 1999 Clause 20.5 – Full Text

“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 notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.”

✅ Key points:

Only kicks in after a DAB decision is rejected.
There’s a 56-day waiting period before arbitration can start.
No actual requirement to engage in settlement talks.

So really, you just wait 56 days, and you’re free to go to arbitration—even if no one talked or tried to solve the issue.

📘 2017 Clause 21.3 – Key Provisions

“If the Parties so agree, they may jointly request… the DAAB to provide assistance and/or informally discuss and attempt to resolve any issue… If the DAAB becomes aware of an issue… it may invite the Parties to make such a joint request… If the Parties make such a request, the DAAB shall provide such assistance as it considers appropriate.”

✅ Key features:

The DAAB can be involved at any time, not just after disputes arise.
It’s voluntary—both parties must request it together.
The DAAB can offer advice, facilitate dialogue, and help clarify misunderstandings.
Importantly, the DAAB’s informal advice is non-binding.

This clause shifts the focus from “how do we fix this after it’s broken?” to “how do we stop it from breaking at all?”

3️⃣ What Does This Mean in Practice?

Let’s break down the real-world implications of these two approaches:

🚨 1999 Risks

No incentive to genuinely attempt resolution.
The DAB has no further role after giving its decision.
Disputes often escalate straight to arbitration.
It’s reactive—you deal with problems only after they explode.

✅ 2017 Benefits

Encourages open dialogue before issues become formal disputes.
Keeps the DAAB actively involved throughout the project, not just during conflicts.
Reduces the need for expensive, time-consuming arbitration.
Builds trust between parties by promoting early resolution of misunderstandings.

💡 It’s like maintaining a car—regular checkups (DAAB involvement) help you avoid a total breakdown (arbitration).

4️⃣ How Do These Clauses Connect to the Rest of the Contract?

These clauses don’t stand alone—they’re part of a bigger dispute resolution ecosystem in FIDIC.

🔗 1999 Clause 20.5 is linked to:

Clause 20.4: The DAB’s decision comes first.
Once a party gives a Notice of Dissatisfaction, the 56-day clock under Clause 20.5 starts.

🔗 2017 Clause 21.3 interacts with:

Clause 21.1: Sets up the DAAB.
Clause 21.4: Formal DAAB decisions follow if informal avoidance fails.
Clause 3.7: DAAB must pause informal help while the Engineer is making a formal determination (unless both parties agree otherwise).

📌 The DAAB’s ability to offer informal help in 21.3 is unique to 2017—it’s not an option in 1999.

5️⃣ What If…? 🤔

Let’s spice this up with some hypothetical scenarios:

❓ What if the parties disagree on using the DAAB informally in 2017?

No joint request = no DAAB involvement. It has to be mutually agreed.

❓ Can a DAAB later change its mind after giving informal advice?

Absolutely. Informal opinions under 21.3 are non-binding and don’t tie the DAAB’s hands later.

❓ What if the parties do nothing during the 56 days under 1999 Clause 20.5?

That’s allowed. The contract still permits arbitration after that period, even if no amicable settlement was attempted.

So in 1999, the window is more symbolic. In 2017, it’s a live tool for managing relationships.

6️⃣ Room for Improvement – Can These Clauses Be Better?

✏️ Suggestions for 1999:

Add language to require actual negotiation efforts during the 56-day window.
Incorporate a standing DAB to allow early-stage dispute handling like in the 2017 edition.

✏️ Suggestions for 2017:

In Particular Conditions, define:
- Time limits for how long DAAB has to respond to a joint request.
- Whether DAAB informal notes are documented or off-the-record.
Consider adding a mechanism where the DAAB can strongly recommend a joint session even without a request.

7️⃣ Final Takeaways – What Should You Remember?

🧩 Feature	1999 – Clause 20.5	2017 – Clause 21.3
When It Applies	After a DAB decision	Anytime during the contract
Parties’ Role	Passive (wait 56 days)	Active (joint request)
DAAB Involvement	None	Central and ongoing
Nature of Assistance	None	Informal and advisory
Binding Effect	No	No (informal only)
Goal	Delay arbitration	Prevent disputes from escalating

🎓 Contractual Wisdom:
1999’s approach is like installing a fire alarm—good to have when things go wrong.
2017’s approach is like installing a sprinkler system—you manage the heat before the fire starts.

Flowchart of Clause 20.5 (1999): Amicable Settlement

Detailed Explanation of the Dispute Resolution Process Flowchart

Start: Dispute Arises
- Overview: The process is initiated when a conflict or disagreement surfaces between parties involved in a project. This could be related to any aspect of the project, such as contractual obligations, work quality, timelines, etc.
- Importance: Recognizing the onset of a dispute is crucial for timely and effective resolution.
Identify Dispute
- Overview: Parties involved acknowledge and clearly define the nature of the dispute. This step involves understanding the root cause and the specific issues at hand.
- Importance: Proper identification is key to addressing the dispute effectively and guides the choice of resolution method.
Refer to DAB
- Overview: The dispute is formally referred to the Dispute Adjudication Board (DAB), a neutral body established to resolve such conflicts.
- Importance: The DAB serves as an impartial entity to assess the dispute and make a decision, which helps prevent escalation.
Unsatisfied with DAB Decision?
- Overview: After the DAB renders a decision, parties assess their satisfaction with the outcome.
- Decision Points:
  - Yes (Unsatisfied): Move to invoke Clause 20.5 for further resolution.
  - No (Satisfied): Accept the DAB’s decision and implement it, concluding the process.
Invoke Clause 20.5
- Overview: If either party is dissatisfied with the DAB’s decision, Clause 20.5 is invoked, which calls for an attempt at an amicable settlement.
- Importance: This clause provides an opportunity for the parties to resolve their differences through negotiation, avoiding more formal dispute mechanisms.
Negotiate for 56 Days
- Overview: Parties engage in negotiations for a period of 56 days. This period is aimed at finding a mutually acceptable solution.
- Importance: This timeframe allows for thorough discussions and deliberations to reach an amicable agreement.
Reach Agreement?
- Overview: At the end of the negotiation period, parties evaluate whether they have reached a satisfactory agreement.
- Decision Points:
  - Yes (Agreement Reached): The agreement is implemented, and the process ends.
  - No (No Agreement): The dispute moves to arbitration for resolution.
Implement Agreement or Proceed to Arbitration
- Overview: Depending on the outcome of negotiations, the parties either implement the agreed-upon solution or proceed to arbitration.
- Importance: This step ensures that the dispute is resolved either through mutual consent or through a formal arbitration process.
End
- Overview: The process concludes, either with the implementation of a mutually agreed solution or the initiation of arbitration proceedings.
- Importance: This final step marks the closure of the dispute resolution process, allowing the parties to move forward, either by continuing their contractual relationship or by seeking a formal resolution through arbitration.

Sample Letters

Scenario 1: Initiating Amicable Settlement Process

Subject: Initiation of Amicable Settlement Process Under Clause 20.5

Dear [Engineer’s Name],

We refer to the Dispute Adjudication Board’s decision dated [Date] concerning [Dispute Subject]. As we are not satisfied with the decision, we would like to invoke Clause 20.5 Amicable Settlement as per the FIDIC Yellow Book 1999.

We propose to meet on [Proposed Date] at [Location] to discuss and hopefully resolve this matter amicably. Kindly confirm your availability.

Best regards, [Your Name] [Your Position]

Scenario 2: Confirming Agreement Reached

Subject: Confirmation of Agreement Reached Under Clause 20.5 Amicable Settlement

Dear [Engineer’s Name],

We are pleased to confirm that an agreement has been reached during our meeting on [Date] under Clause 20.5 Amicable Settlement. We will proceed with the agreed actions by [Agreed Deadline].

Best regards, [Your Name] [Your Position]

Scenario 3: Proceeding to Arbitration

Subject: Proceeding to Arbitration Following Unsuccessful Amicable Settlement Under Clause 20.5

Dear [Engineer’s Name],

Despite our best efforts, we were unable to reach an amicable settlement during our meeting on [Date]. As per Clause 20.5 Amicable Settlement, we will now proceed to arbitration.

Best regards, [Your Name] [Your Position]

Checklists

Checklist 1: Proficient Execution and Deployment of Clause 20.5

Step	Action	Responsible Party	Deadline	Notes
1	Review DAB Decision	Contractor/Engineer	ASAP after DAB Decision	Ensure you understand the DAB’s findings.
2	Decide to Invoke Clause 20.5	Contractor/Engineer	Within 28 days of DAB Decision	Make a formal decision to proceed with amicable settlement.
3	Notify Other Party	Contractor/Engineer	Within 7 days of Decision	Send a formal letter invoking Clause 20.5.
4	Schedule Meeting	Contractor/Engineer	Within 14 days of Notification	Agree on a date, time, and location.
5	Prepare for Meeting	Contractor/Engineer	Before Meeting	Gather all relevant documents and prepare arguments.
6	Conduct Meeting	Contractor/Engineer	As Scheduled	Aim for an amicable resolution.
7	Document Outcome	Contractor/Engineer	Immediately after Meeting	Record any agreements or next steps.

Checklist 2: Applying and Overseeing Clause 20.5

Step	Action	Responsible Party	Deadline	Notes
1	Monitor DAB Decisions	Contractor/Engineer	Ongoing	Keep track of all DAB decisions that may require amicable settlement.
2	Assess Feasibility	Contractor/Engineer	After Each DAB Decision	Evaluate if Clause 20.5 is appropriate.
3	Consult Legal Team	Contractor/Engineer	Before Invoking Clause	Ensure legal compliance and strategy.
4	Follow Procedure	Contractor/Engineer	During Process	Adhere to the steps outlined in Clause 20.5.
5	Review Outcomes	Contractor/Engineer	After Each Settlement	Analyze the effectiveness and fairness of the settlement.

Checklist 3: Guide and Monitor the Execution of Clause 20.5

Step	Action	Responsible Party	Deadline	Notes
1	Initiate Clause 20.5	Contractor/Engineer	As Needed	Start the process by notifying the other party.
2	Set Agenda for Meeting	Contractor/Engineer	Before Meeting	Clearly outline discussion points.
3	Assign Mediator (Optional)	Contractor/Engineer	Before Meeting	Decide if a neutral third party is needed.
4	Execute Meeting	Contractor/Engineer	As Scheduled	Conduct the meeting and strive for resolution.
5	Monitor Timelines	Contractor/Engineer	Ongoing	Ensure all deadlines are met.
6	Document and File	Contractor/Engineer	After Process	Keep records of all communications and outcomes.

FAQ’s

What is Clause 20.5 Amicable Settlement?

Clause 20.5 Amicable Settlement is a provision in the FIDIC Yellow Book 1999 that outlines the procedure for resolving disputes amicably between the Contractor and the Employer. This clause is invoked if either party is dissatisfied with the decision of the Dispute Adjudication Board (DAB).

When Can Clause 20.5 Be Invoked?

This clause can be invoked within 28 days after receiving the DAB’s decision. If either party wishes to proceed with amicable settlement, they must notify the other party in writing.

What is the Timeframe for Amicable Settlement?

Once Clause 20.5 is invoked, the parties have 56 days to negotiate and attempt to reach an amicable settlement. If no agreement is reached within this period, either party may proceed to arbitration.

What Happens During the 56-Day Period?

During this period, the parties usually schedule meetings to discuss the dispute in detail. They may also involve legal advisors or mediators to facilitate the negotiation process.

Can Clause 20.5 Be Skipped?

No, Clause 20.5 is a mandatory step before proceeding to arbitration, unless both parties mutually agree to waive this requirement.

What Should Be Documented During the Amicable Settlement Process?

It’s crucial to document all communications, offers, counteroffers, and any agreements reached. This documentation may be referred to in subsequent arbitration or legal proceedings.

What Happens if an Agreement is Reached?

If an agreement is reached, it should be documented and signed by both parties. The agreed actions are then implemented according to the terms of the agreement.

What Happens if No Agreement is Reached?

If no agreement is reached within the 56-day period, either party has the right to proceed to arbitration to resolve the dispute.

Can the 56-Day Period Be Extended?

The 56-day period can only be extended by mutual agreement between the parties involved.

How Does Clause 20.5 Interact with Other Clauses?

Clause 20.5 is often closely related to other clauses dealing with dispute resolution, such as Clause 20.4 (DAB’s Decision) and Clause 20.6 (Arbitration).

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.