South Africa: A Guide To Using A Dispute Adjudication Board

Last Updated: 27 February 2012
Article by Nikita Lalla and Dean Ehrlich

Most Read Contributor in South Africa, November 2016

Prior to 1987, the FIDIC suite of contracts did not contain any reference to a dispute adjudication board (DAB). When the 1999 first editions were published, the DAB was included in all 3 major FIDIC standard forms of contract. The introduction of the DAB can be directly linked to the Contractor's reliance on the Engineer's determination prior to instituting arbitral proceedings. The Employer's relationship to the Engineer was then, as it is now, a controversial one which made many contractors leery of the Engineer's independence when making these determinations.

FIDIC caters for 2 different DAB models - a "standing" DAB (in the Red, Pink and Gold Books) and an "ad hoc" DAB (in the Yellow and Silver Books) although their use in the FIDIC forms can be substituted as required by the Parties.

The standing DAB is appointed by the Parties at the outset of the Contract and operates until expiry of the contract. The most significant advantage the standing DAB has over the ad hoc DAB is it will have an intimate knowledge of the contract, project progress and issues in dispute. Potentially, the DAB can use its role to resolve disputes amicably. Even if it is unable to do so, it will be better equipped make quicker decisions than an ad hoc DAB.

The ad hoc DAB is appointed by the Parties only when a dispute arises. It only adjudicates upon those disputes referred to it. One of its advantages is that it allows the Parties to select the DAB with the required expertise most suited to the nature of the dispute. Suffice it to say, it is also a less expensive proposition than the standing DAB. We shall use the FIDIC Yellow Book as a basis to discuss the appointment and role of the DAB.

The DAB must be appointed no later than 28 days after notice of a Party's intention to refer a dispute to adjudication1. There is no consequence if the Parties do not adhere to this time period and, in practice, it is rare that the DAB appointment is finalised within the stipulated 28 days. The Yellow Book provides that the Parties and the DAB members use the FIDIC Dispute Adjudication Agreement to govern their relationship. In addition, there are procedural rules attached as an appendix to the General Conditions of Contract which will govern the way in which the DAB operates. In keeping with the FIDIC approach, both may be particularised as is required by the Parties.

The Yellow Book caters for either a 1 or 3 member DAB although the default position is a 3 member DAB.

A variety of factors will influence the decision on the number of DAB members. These include the value and scope of the project, its duration and the particular expertise involved. The FIDIC Guide recommends a three member DAB where the estimated Contract Price exceeds $25 million. It is also suggested that if the average Interim Payment Certificate is less than $1 million, a one member DAB is sufficient.

A one member DAB requires the Parties to jointly appoint that member. A 3 member DAB requires each Party to nominate 1 member whose appointment is subject to the approval of the other Party. Sub-Clause 1.3 is useful in ensuring that the other Party's approval is not unreasonably withheld or delayed. The Parties are required to consult with the 2 appointed members to agree the third member - the chairman.

The Parties should give careful consideration to the appointment of the DAB members. FIDIC offers guidance on their selection by providing that they are:

  • "suitably qualified persons2
  • "experienced in the work which the Contractor is to carry out under the Contract3";
  • "experienced in the interpretation of Contract Documentation4"; and
  • "fluent in the language for communication defined in the Contract5".

These requirements imply that a combination of technical and legal expertise may be necessary to ensure a compliant DAB.

If the Parties are unable to agree the constitution of the DAB Sub-Clause 20.3 provides that the entity or person named in the Appendix to Tender shall make the appointment.

It is important to note that the appointment of the DAB requires not just the participation but the agreement of both Parties. The power of the DAB to make decisions on disputes6 is granted by the Dispute Adjudication Agreement which is only effective upon signature by the Parties and the DAB member. It is very possible that a Party may frustrate and possibly undermine the entire DAB process by refusing to sign the Dispute Adjudication Agreement. In such a case, a Party has to rely on Sub-Clause 20.8 to refer the matter directly to arbitration. Here, the standing DAB enjoys an advantage because the DAB members are appointed prior to contract signature when the Parties relationship is more amicable.

The DAB's remuneration is agreed between the Parties and the DAB member with each Party responsible for paying half of the agreed remuneration. This helps avoid a perception of bias that might otherwise exist if the DAB was paid by only one Party. It is common practice for the DAB to invoice the Contractor for the full amount which the Contractor then recovers through the Interim Payment Certificates. The DAB's appointment expires with the delivery of its decision unless another dispute was, in the interim, referred to it.

In theory, the DAB process is more impartial than the Engineer's determination and cheaper and quicker than arbitration. The Parties must take care, however, to ensure that the DAB process does not simply become a mini-arbitration. If used appropriately, the DAB process offers the Parties an effective and independent method of dispute resolution.

Footnotes

1. Sub-Clause 20.2
2. Sub-Clause 20.2
3. Clause 3(a) of the Dispute Adjudication Agreement
4. Clause 3(b) of the Dispute Adjudication Agreement
5. Clause 3(c) of the Dispute Adjudication Agreement
6. Sub-Clause 20.4

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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