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FIDIC’s new neutrality clause will impact Middle East’s construction engineers

What impact will FIDIC’s newly introduced requirement for engineers to act ‘neutrally’ have on the construction schemes under way in the Middle East?

COMMENT, Business, Construction, Contract, FIDIC, Middle East construction engineers, New neutrality clause

The International Federation of Consulting Engineers (FIDIC) is recognised as a global producer of standard forms of construction contracts.

Given the extensive reliance on FIDIC forms in the Middle East, the organisation’s new edition, published in December, is of particular interest to those operating in the region.

Compared to the preceding 1999 edition, the 2017 edition includes considerable amendments that have attracted both praise and criticism. One of the newly introduced amendments is the requirement for the engineer to act neutrally.

Like all previous editions of FIDIC, under the 2017 edition the engineer is appointed, paid, and can be replaced by the employer. The engineer’s primary role remains to supervise construction work on behalf of the employer. However, in the new edition, the engineer is required to carry out certain actions in a “neutral capacity”. Thus, the engineer has to perform a dual role, undertaking certain functions as the employer’s agent, and other functions as a neutral third party.

FIDIC requirements

Since its first edition in 1957, the FIDIC conditions have stipulated that the engineer make determinations that can affect the rights and obligations of both the employer and the contractor. However, the requirement to make these determinations in an independent capacity has changed over the years.

The 1987 edition obliged the engineer to act “impartially” when exercising their discretion.  That obligation was removed in the 1999 edition, however, which stipulated that the engineer “be deemed to act for the employer”.

The 1999 edition also introduced the dispute adjudication board (DAB) and shifted the first-tier dispute resolver role away from the engineer and to the DAB. This was a sensible development, as the DAB – which is jointly appointed and paid by both parties – is better placed than the engineer to be truly impartial.

However, FIDIC’s 2017 edition has introduced an express obligation for the engineer to act “neutrally” between the parties when determining any matter or claim. The new conditions further stipulate that when making such determinations, the engineer should not be deemed to be acting for the employer. These new provisions raise a number of questions.

Questions raised

Firstly, is it realistic to require an engineer to act neutrally when deciding matters against their client? This requirement is difficult to implement in practice, although it could be argued that the integrity of engineering professionals should make it possible. However, because certain claims may, in reality, be caused by the engineer’s own actions or omissions, expecting them to maintain neutrality when determining such claims seems unrealistic.

Secondly, is it actually desirable for the engineer to act neutrally? Would this really benefit the project and parties involved? Having appointed the engineer, the employer would normally wish to rely on their knowledge and expertise to respond to the contractor’s claims and prepare the employer’s claims and counterclaims. This would require the engineer to actively find facts and develop arguments to support their client’s position.

If the engineer is to take a passive, neutral position, this could leave the employer inadequately represented, and necessitate the appointment of additional resources by the employer to act on their behalf. However, since the 2017 edition provides for a standing and neutral dispute avoidance/adjudication board (DAAB), the appointment of additional resources would result in additional costs.

Thirdly, while the 1999 edition provided for the engineer’s response to contractor claims within a certain time frame, the 2017 edition does not provide for any response to be made. The engineer is required to proceed with consultations and determinations as soon as they receive the contractor’s claims. This approach is problematic as the preparation of a carefully considered response is necessary to develop a true understanding of the issues being claimed.

Considering all of these factors, it seems likely that the new obligation for the engineer to act neutrally could result in unnecessary confusion and complexities. It is recommended, therefore, that parties wishing to adopt the new FIDIC edition make changes to the related clauses.

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