The FIDIC Practice Note on Dispute Boards – Lessons for Canada

Construction and infrastructure projects are complex endeavors with numerous inherent challenges and risks. Delays, cost overruns, and disputes are commonplace in the industry. Recognizing the need for effective dispute resolution mechanisms, the International Federation of Consulting Engineers (“FIDIC“) has recently published a practice note on dispute avoidance strategies on construction projects, with a focus on the use of dispute boards (the “Practice Note” – available here). In this article, we review the principles and practices of dispute avoidance outlined by FIDIC, and consider their applicability to the Canadian construction industry.

Background

As readers know, construction projects involve extensive time and cost commitments, often to an extent far beyond other types of contractual relationships. The competitive tendering process, project-specific designs, and the involvement of multiple stakeholders compound this complexity[1], creating a fertile ground for disputes.

Recognizing the inevitability of disputes in such projects, FIDIC has continuously evolved its standard forms of contracts to incorporate mechanisms for dispute avoidance.[2] To that end, and although the FIDIC suite did not invent the concept of a dispute board, FIDIC popularized the use of dispute adjudication boards beginning with the publication in 1995 of the Orange Book. More recently, FIDIC established a Dispute Avoidance and Adjudication Forum, which convened for the first time in 2022 and is intended to be a regular forum at FIDIC conferences on a semi-annual basis. From that Forum has come the Practice Note, which considers a series of issues associated with dispute avoidance.

The Practice Note – Five Core Tasks and Techniques

The Practice Note considers five core tasks and techniques of a dispute board, designed to foster awareness and collaboration among project stakeholders as a means of avoiding disputes before they begin.

Task 1: Raising awareness

The Practice Note advocates for early engagement between parties to establish rapport and build confidence. To that end the Practice Note recommends that the dispute board should convene an ‘introductory’ or ‘kick-off’ meeting as soon as practicable after it is appointed, in order to explain to the parties its dispute avoidance role. Ideally, this should occur prior to the start of work, and during this meeting, the dispute board should provide a comprehensive overview, addressing key aspects such as key contractual provisions and applicable dispute board procedural rules, such as the provision allowing parties to jointly seek an opinion from the dispute board when disagreements arise. It is essential for the dispute board, during this introductory meeting, to demonstrate how to implement dispute avoidance, and offer practical examples that showcase its effectiveness. [3]

Interestingly, the Practice Note also recommends that throughout the project’s duration, the dispute board should remind the parties of its dispute avoidance role. These reminders may involve the inclusion of “matters of concern” in site visit agendas, where potential issues are addressed pre-emptively. For instance, if there are concerns about a design change, the dispute board can proactively engage the parties to explore alternative solutions. Further, FIDIC recommends the board maintain a proactive dispute avoidance spirit in all communications with the parties so as to foster an environment where parties are encouraged to engage in avoidance efforts. For example, the board should remind parties to comply with their reporting requirements as Monthly Progress Reports often contain useful information, and such Reports may serve as early warning mechanisms to both the board and the parties to avoid disputes.[4]

Task 2: Building and Maintaining Trust

Given that trust is a cornerstone of successful dispute avoidance, the Practice Note cautions that dispute boards must demonstrate neutrality, effective communication, and professionalism to earn and sustain trust. Parties should view the dispute board as an indispensable component of the project team, dedicated to achieving the project’s success.

In that regard the dispute board must consistently convey its unbiased stance and freedom from any vested interests; for instance, when disputes arise over contractual interpretation, the board should impartially listen to both parties, avoid displaying any preference, and render a just assessment.[5]

Interestingly, the Practice Note recommends that the dispute board should adopt a “best for the project” mindset, positioning itself as a critical part of the project team focused on advancing the project’s overall success rather than favouring one party’s interests. For instance, when addressing issues like project changes or cost assessments, the board should emphasize that its recommendations aim to benefit the project holistically.[6] Although not addressed in the Practice Note, this recommendation arguably creates a tension between the dispute board being a ‘part of the team’ on the one hand, and acting as an independent, third-party adjudicator removed from the parties, on the other; while these two positions are not necessarily mutually exclusive, it nevertheless creates a fine line that the dispute board must walk.

In any event, the Practice Note also observes that the board must earn the respect of all parties to the project. At a minimum, this means having a strong understanding of project intricacies, FIDIC Contracts, and the construction industry in general.

Task 3: Determining Timing and Location

Deciding when and where to engage in dispute avoidance is critical. According to the Practice Note, dispute avoidance should take place when all key decision-makers from each party are available. Site visits, whether conducted physically or virtually, as well as meetings and email exchanges, serve as suitable venues for initiating dispute avoidance discussions. For instance, when a project alteration arises, such as a proposed design change, it is advisable to convene a site visit with all relevant stakeholders present. This allows for in-depth discussions and immediate decisions, potentially preventing the issue from escalating into a dispute.

Further, a dispute board should continuously remind parties that dispute avoidance is an ongoing process. By actively encouraging parties to make joint requests for an opinion or providing informal assistance, the board can proactively identify and address potential disputes. For example, the board, after reading the parties’ Monthly Progress Reports, may identify potential issues and engage the parties in discussions to avoid disputes. Such early intervention can reduce the chances of conflicts intensifying as the project progresses.

Task 4: Identifying Matters for Dispute Avoidance

Early recognition of potential areas of dispute is integral to the success of dispute avoidance efforts. To that end, the Practice Note observes that  matters that may be suitable for dispute avoidance include contract interpretation, variations and design responsibility.[7] For example, contract interpretation disputes typically revolve around understanding the substantive or procedural provisions of a contract. When parties encounter disputes related to contract provisions, the dispute board can offer informal guidance to help the parties grasp their respective responsibilities and rights, thereby pre-empting possible conflicts.

Task 5: Selecting the Appropriate Form

Dispute avoidance can assume various forms, each with its advantages. These forms include informal discussions, issuing opinions (either orally or in writing), and involving the dispute board during site visits or online meetings. The Practice Note recommends that parties consider their preferences and the specific circumstances of each situation when selecting the appropriate form for dispute avoidance (in other words, ‘fitting the forum to the fuss’).

For instance, informal discussions provide an opportunity for swift resolution through joint readings of the contract or negotiations facilitated by the dispute board. In situations where parties rapidly reach an agreement on contract interpretation, conducting these discussions orally can sometimes expedite the process without the need for written records.[8]

On the other hand, written opinions issued by the dispute board, whether as separate documents or included in site visit reports, offer valuable insights and a clear and definite indication of the board’s perspective on a particular issue. Written opinions can be especially beneficial when parties need documented records for their management or third parties, such as authorities or financiers.[9]

Commentary

Overall, the Practice Note contains a number of sensible recommendations that should yield tangible benefits for a project and its participants. Such benefits would include the following:

• Maintaining cashflow. By avoiding disputes, construction can continue and the project can sustain a consistent cashflow, reducing the financial strains that arise from payment slowing or halting in the face of a dispute. Financial stability allows for efficient project management, enabling real-time oversight and reducing disruptions and delays;
• Preservation of business relationships among project participants. By resolving disputes amicably and promptly, the professional rapport and trust among key stakeholders is safeguarded. This is particular important in the construction industry, where parties often re-engage with others (subcontractors, suppliers, etc.) over a period of years; and
• As observed by the Practice Note, stress is reduced for all stakeholders involved. Minimizing disputes through early resolution or avoidance not only eliminates the anxiety and tensions that come with prolonged disagreements, but also enhances the overall work environment, promoting a more harmonious and productive atmosphere.

That being said, the Practice Note recognizes that there are external factors that may obstruct successful dispute avoidance, which factors may be broadly relevant no matter the jurisdiction.  External pressures, such as government audit pressure (that is, the need to have a formal means of justifying payment to another party), can force disputes into formal resolution processes. This is particularly true in Canada, where public owners are conscious that payments to a counterparty using taxpayer funds requires a reasoned basis. Similarly, certain jurisdictions may maintain a legal culture that prioritizes litigation (or rather, dispute resolution), thus making dispute avoidance more difficult.

As well, internal procedures within organizations may hinder the agreement or admission of any wrongdoing, just as internal financial pressures may prompt parties to prioritize financial results over dispute avoidance. On any given project, a party may also become entrenched in their view of an issue, making it difficult to avoid a dispute.

Notwithstanding that FIDIC’s suite of contracts is not regularly used in Canada, the issues identified in the Practice Note are equally applicable to the Canadian construction industry. The Practice Note therefore provides valuable guidance to construction industry participants on how best to minimize and resolve disputes on projects before and as they arise. As readers will appreciate, the use of dispute boards has grown on public projects in Canada over the past several years, although the growth of dispute review boards appears to lag behind that of dispute adjudication boards. With guidance from the Practice Note, we will await with interest to see if this changes.

[1] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 1.

[2] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 2.

[3] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 11.

[4] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 12.

[5] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 13.

[6] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 13.

[7] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 19.

[8] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 21.

[9] FIDIC Dispute Avoidance and Adjudication Forum Practice Note: Dispute Avoidance at 21.

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