Disputes in Construction Projects and the Role of FIDIC Contracts in Mitigating Them

First: Key Causes of Disputes in Construction Projects

  1. Ambiguity in Scope of Work and Contract Documents:
    Studies indicate that approximately 30–40% of disputes arise from ambiguity or inconsistencies in contract documents, particularly drawings and specifications.

  2. Variation Orders:
    Changes during execution are a major cause of disputes, with nearly 40% of major disputes being directly or indirectly related to variation orders in terms of financial valuation or time impact.

  3. Delays in Completion:
    More than 50% of disputes involve time-related claims due to delays in execution or disagreements over responsibility for delays.

  4. Financial Disputes:
    Delayed payments or unjustified deductions lead to strained contractual relationships and directly affect main contractors and subcontractors.

 

Second: The Role of FIDIC Contracts in Dispute Management

FIDIC contracts rely on clear allocation of responsibilities, mandatory time-bound notices, and the existence of a formal dispute resolution mechanism (DAAB). Specialized reports indicate that more than 70% of disputes referred to Dispute Avoidance/Adjudication Boards are resolved without resorting to arbitration, thereby reducing both cost and duration.

 

Third: Differences Between the Red, Yellow, and Silver FIDIC Contracts

1. FIDIC Red Book

  • Contract Nature: Construction Contract; design responsibility lies with the Employer.

  • Risk Allocation: Design risks borne by the Employer; construction risks borne by the Contractor.

  • Common Disputes: Variation orders, quantities, delays in approval of drawings.
    ???? The Red Book is the most commonly used, but it is more prone to disputes due to frequent changes.

2. FIDIC Yellow Book

  • Contract Nature: Design and Build; the Contractor is responsible for both design and execution.

  • Risk Allocation: A significant portion of risk is transferred to the Contractor, reducing disputes related to design errors.

  • Common Disputes: Performance requirements, interpretation of functional specifications, acceptance tests.
    ???? Disputes are fewer than under the Red Book but are often more technically complex.

3. FIDIC Silver Book

  • Contract Nature: EPC / Turnkey.

  • Risk Allocation: Most risks are borne by the Contractor, with limited Employer involvement in variations.

  • Common Disputes: Force majeure, unforeseen conditions, limits of liability, and compensation issues.
    ???? The least flexible contract, but it provides the highest level of certainty for the Employer, at the cost of increased Contractor risk.

 

Conclusion

Practical experience shows that disputes in construction projects cannot be entirely eliminated. However, selecting the appropriate FIDIC contract type for the nature of the project, along with effective management of notices and variations, significantly contributes to reducing both the frequency and severity of disputes. Understanding the fundamental differences between the Red, Yellow, and Silver FIDIC contracts is a key factor in achieving a balance between risk, cost, and time.

 

References

  1. FIDIC, Conditions of Contract for Construction (Red Book)

  2. FIDIC, Conditions of Contract for Plant and Design-Build (Yellow Book)

  3. FIDIC, Conditions of Contract for EPC/Turnkey Projects (Silver Book)