Interaction between Theory and Practice in Civil Engineering and Construction

Edited by Komurlu, R., Gurgun, A. P., Singh, A., and Yazdani, S.

Copyright © 2016 ISEC Press
ISBN: 978-0-9960437-2-4

OPPORTUNITIES FOR ATTEMPTING AMICABLE

SETTLEMENT ALONG THE CLAIM/DISPUTE
TIMELINE
MOHAMED-ASEM U. ABDUL-MALAK1 and SIBA J. JABER2
1
Civil and Environmental Engineering, American University of Beirut, Beirut, Lebanon
2
Engineering Management Program, American University of Beirut, Beirut, Lebanon

Claims and disputes are considered an inevitable consequence of the construction

process, and project participants are becoming more aware of their costly and lengthy
resolution process. The conditions of contract normally include procedures for the
submittal, administration and resolution of claims, while it is widely recognized that
attempting to resolve claims/disputes through amicable settlement as opposed to
arbitration or litigation can save on a lot of time and money. This paper presents a
critical analysis of the windows of opportunities offered under both the 1987 and 1999
FIDIC conditions of contract for attempting to resolve claims/disputes amicably. It
first focuses on the 56-day period specifically dedicated for attempting an amicable
resolution of disputes and highlights the possibilities of effectively stretching this
period in more than one way. It further explores the opportunities available at the
earlier stages of the claim/dispute timeline, before a claim is escalated to the level of a
dispute.
Keywords: Construction, Claims, Disputes, Resolution, Amicable, Settlement.

1 CONSTRUCTION CLAIMS AND DISPUTES

Projects with complex designs and contract conditions are likely to result in extra costs
and/or delays for the Contractor, which may cause claims to arise. Contractors resort to
construction claims to recuperate the additional costs incurred during any construction
project, and tend to argue that owners are not always fair when judging their
entitlement to compensation (Fawzy and El-adaway 2012). The costly and lengthy
resolution of these claims and disputes has become a matter of concern for the parties
involved. If construction conflicts are not effectively addressed and managed, they can
evolve into serious disputes, which may result in additional time-delay costs (Seifert
2005). Resolving disputes and managing claims in an optimal and timely manner (in
accordance with the contract conditions) can minimize cost, time, and tension, which is
why the claim-dispute resolution process is critical to any project and should allow the
parties to rightfully achieve their objectives (Cheeks 2003). When submitting a claim,
the contractor must closely follow the steps dictated in the contract conditions. The
International Federation of Consulting Engineers (FIDIC) has prescribed in its standard
contract documents a protocol to be followed by the parties to track and administer
claims/disputes. It is expected that, after a claim has been notified and detailed
particulars submitted, consultation discussions and various attempts at reaching an

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agreement on the matter are to take place. At this point in time, the matter at hand is
still considered a claim, and has not yet evolved into a dispute. As illustrated in Figure
1, the FIDIC’s guidelines explain that a claim develops into a dispute if one or more of
the following factors are fulfilled:

Figure 1. Claim escalating into a dispute.

The completed research work, being reported on in this paper, aimed at the
identification of opportunities along the claim/dispute timeline that can be viewed as
potential windows for attempting and achieving agreement/settlement of
claims/disputes before any such unresolved maters are referred to arbitration/litigation.
Five windows have been identified as such, and their candidacy for being explored by
the parties for achieving amicable agreements/settlements has been verified through the
analysis of claims/disputes administration on nine recent projects undertaken in the
Middle East and North African (MENA) region. This paper focus only on the critical
analysis part of the research which demarks the windows of opportunities offered under
both the 1987 and 1999 FIDIC conditions of contract for attempting to resolve
claims/disputes amicably.

2 AMICABLE SETTLEMENT
An amicable settlement of a dispute can be defined as an agreement that is reached to
the satisfaction of all parties involved, by way of avoiding what may otherwise be
lengthy and costly dispute resolution procedures. Such a settlement can occur at earlier
stages along the claim/dispute timeline depending on the parties’ attitudes, but it may
also be delayed until after the issuance of a determination/decision in regard of any
such claim/dispute. According to Sub-Clause 20.5 of the 1999 FIDIC conditions of
contract, after a notice of dissatisfaction with a decision by the Engineer or the Dispute
Adjudication Board (DAB) is issued, the conflicting parties are allowed a period of
time to attempt to resolve the dispute amicably. Here, amicable settlement is required
as a condition precedent to the commencement of arbitration, although this sub-clause
does not prescribe any method/procedure for pursuing such a settlement. According to
Booen (2000), no method is specified in order to give the parties the greatest flexibility
in the choice of the procedure, including direct negotiation, conciliation, or mediation.

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2.1 Motives for Amicable Settlement

Attempting to resolve disputes through amicable settlement as opposed to arbitration or
litigation gives the parties on either end of the dispute the chance to exercise some
degree of control over the way their disputes are administered and resolved. A number
of factors may motivate a party to settle amicably before resorting to litigation or
arbitration. These could include the desire to maintain good relationships with the
other party, the concerns for the time and cost that might be spent if the dispute is to be
settled arbitration/litigation, the weakness of one’s own case, and the concerns about
the lack of assets of the opposing party, among others (Panov and Petit 2015).

2.2 The Claim-Dispute Phases

The 1987 and 1999 FIDIC conditions of contract stipulate requirements and their
associated time bars for the administration of claims and disputes. As such, the claim-
dispute timeline can be understood to involve four major phases, as illustrated in Figure
2. The interests and – correspondingly – the attitudes of the parties are expected to
differ between any one phase and the next, depending on how the claim/dispute details
and emanating discussions unveil and evolve, respectively. A critical aspect of this
timeline is when the determination by the Engineer is challenged by either party, and
the matter is subsequently referred as a dispute either back to the Engineer or –
alternatively – to the DAB, depending on the contract’s stipulation, for the issuance of
an Engineer’s Decision or a DAB’s Recommendation or Determination (as the case
warrants), respectively.

Figure 2. Claim-dispute timeline under the 1987 and 1999 FIDIC’s conditions.

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2.3 Effective Length of the Amicable Settlement Period

Although Sub-Clause 67.2 of the 1987 and Sub-Clause 20.5 of the 1999 FIDIC
conditions of contract both allocate a mandatory period of 56 days along the dispute
timeline during which amicable settlement can be attempted and achieved, this period
can effectively be construed in several ways, thus resulting in an extension of this
stipulated period, as discussed hereunder.

2.3.1 Issuance of the notice of dissatisfaction

The disputing parties are allowed a 70-day period (1987 FIDIC) or a 28-day period
(1999 FIDIC) following the date when an Engineer’s or a DAB’s decision is issued to
give a notice of dissatisfaction; otherwise, the issued decision becomes contractually
binding. This is followed by a 56-day period allowing for amicable settlement. It
becomes evident here that the point along the dispute timeline when the notice of
dissatisfaction is actually issued can allow for more or less time to attempt amicable
settlement. That is, the 70-day or 28-day period given for the disputing parties to
consider the issued decision and entertain accepting or rejecting it can be added to the
56-day period specifically stipulated for allowing amicable settlement attempts. It can
therefore be argued that indirectly extending the effective period for amicable
settlement in such a backward manner, as shown in Figure 3(a), by not rushing the
issuance of the notice of dissatisfaction, can be considered advantageous for the
disputing parties, as it allows them more time to try and resolve their differences as a
last resort prior to arbitration or litigation.

(a) (b)

Figure 3. Extensions to the amicable settlement period.

2.3.2 Extension by mutual agreement

Sub-Clause 67.2 of the 1987 FIDIC and Sub-Clause 20.5 of the 1999 FIDIC conditions
of contract state that “unless the 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.” It
therefore follows that the originally stipulated 56-day period can be extended to allow

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more time for attempting amicable settlement, provided that both parties mutually agree
to any such extension. It is worth noting that the maximum number of days of any such
extension can be contemplated at the onset of the project and can therefore be specified
in the particular conditions of the contract. Alternatively, the number of days can also
be extended at any time before the expiry of the 56-day period, if both parties feel they
need more time to attempt settlement. This extension is shown in Figure 3(b).

3 DEMARCATION OF AMICABLE SETTLEMENT WINDOWS

As discussed above and seen in Figure 4, there already exist two windows for
attempting amicable settlement following the issuance of a decision on a referred
dispute: Window 1, which is demarked by the originally stipulated 56-day period and
any extension to it, mutually approved by the parties, and Window 2, which is
demarked by extending the originally stipulated 56-day period in a backward manner,
to reflect not rushing the issuance of a notice of dissatisfaction by either party. A third
window of opportunity can be further identified, which demarks the period extending
between the expiry of the 56-day period (or any possible extension to it) and the date of
initiation of arbitration. This could also include any further notice period required prior
to the commencement of arbitration. Window 3 might extend considerably for various
reasons, one of which, as verified by the project cases examined, can be the stipulation
of the issuance of the taking-over certificate as a condition precedent to the initiation of
arbitration. To be further noted is that while the FIDIC conditions stipulate the expiry
of the 56-day period before arbitration may be commenced, an upper bound as to when
such an initiation may take place is not prescribed.
The three windows discussed above fall along the dispute part of the claim-dispute
timeline. However, additional windows exist on the claim part of the timeline that
allow the parties to resolve their differences early on, when the matter has not yet
developed into a dispute. To this effect, Window 4 extends from the moment when the
Engineer responds with a determination, at least on the principle of the claim, until the
matter is referred back to the Engineer, or to the DAB, for a decision. During this
period, further particulars may be submitted and the issued determination deliberated.
At this stage, the tension between the parties has not escalated, and communication
between the parties can usually be attempted without the need for third-party
assistance. It was verified through the project cases examined that this period can
extend well into the construction duration as well as beyond the substantial completion
of the works, due to the claiming party’s concerns as to the consequences of potentially
having to reject an Engineer’s or a DAB’s decision and, consequently, having to notify
the other party of the intention to commence arbitration. The fifth window represents
the first opportunity for reaching agreement on any matter in question. This is inherent
in the language stipulated under Sub-Clause 3.5 of the 1999 FIDIC conditions,
requiring the Engineer to consult with each party in an endeavor to reach agreement. At
this early stage, the role played by the Engineer is expected to have a significant
bearing on the way the differences concerning the matter in question may evolve.

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Figure 4. Demarked windows for attempting agreement/settlement.

The above-demarked windows should be considered as opportunities that – if not

taken for granted – could help resolve claims/disputes expeditiously, save the parties
time and money, and help maintain good relationships among them.

References
Booen, Peter L., The FIDIC Contracts Guide: Conditions of Contract for Construction,
Conditions of Contract for Plant and Design-build, Conditions of Contract for EPC/turnkey
Projects. Lausanne: Fédération Internationale Des Ingénieurs-Conseils, 2000.
Cheeks, J. Richard, Multistep Dispute Resolution in Design and Construction Industry, Journal
of Professional Issues in Engineering Education and Practice, 129.2, 84, 2003.
Fawzy, Salwa A. and Islam H. El-adaway, Contract Administration Guidelines for Managing
Conflicts, Claims, and Disputes under World Bank Funded Projects, Journal of Legal
Affairs and Dispute Resolution in Engineering and Construction, 4.4, 101-110, 2012.
Panov, Andrey, and Sherina Petit, Reviews - Arbitration News, Features and Reviews - Global
Arbitration Review, globalarbitrationreview.com, Retrieved from
www.globalarbitrationreview.com on September 28, 2015.
Seifert, Bryan M. “International Construction Dispute Adjudication under International
Federation of Consulting Engineers Conditions of Contract and the Dispute Adjudication
Board, Journal of Professional Issues in Engineering Education and Practice, 131.2, 149-
157, 2005.

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