ABSTRACT
Global marketization of the construction sector and especially large-scale projects which are conducted in developing countries bring parties from different nationalities together. As a result, since construction projects are linked to more than one legal system, it necessitated the implementation of standard rules for these contracts. Among these standard rules, the most preferred one is the “Fédération Internationale des Ingénieurs Conceils” (International Federation of Consulting Engineers, in short “FIDIC”) rules. Contracting parties will have many advantages by deciding that FIDIC standard rules shall apply to their projects. Also, in case of a legal dispute, of the alternate resolution of disputes mechanisms that are specified in FIDIC contracts, first, the resolution of disputes through the “Dispute Adjudication Board” (“DAB”), and then the resolution of disputes through arbitration can be applied1. The FIDIC standard contracts constitute the main topic of the article.
I. INTRODUCTION
The FIDIC rules are resulted from the need of an international standard contract in view of the parties that are of different nationalities having difficulty in providing unity among the aspects of legislation and customary law in international construction contracts. In this sense, it is fair to say that within the scope of the construction contracts, the requirement of an internationally-recognized standard contract is fulfilled2.
For the avoidance of doubt, it should be noted that the FIDIC rules are applicable not only to international construction contracts but also to the contracts regulating projects that do not include international aspects. In the 1999 edition of the Red Book, which is one of the standard contracts of FIDIC, the phrase “international" which was in the caption of said rules, has been removed for the purpose of enabling the parties that are of the same nationality to use the FIDIC rules3.
If the contracting parties decide that FIDIC standard rules shall apply to the project, they will both save time and be able to prevent some legal disputes by determining some certain situations that are too hard to predict when the contract is being drawn up. However, since the FIDIC standard contracts cannot always be sufficient for the dispute resolution, the parties must either stipulate some additional regulations or specify the law that will be applied to the substance of the dispute.
In this article by examining the FIDIC standard contracts, the methods of settling disputes are explained, and the institution of arbitration is particularly emphasized.
II. FIDIC STANDARD CONTRACTS
FIDIC was founded in 1913 in the city of Lausanne, Switzerland. Associations of consulting engineers and architects of ninety-seven countries including the Association of Turkish Consulting Engineers and Architects, are represented by FIDIC. FIDIC prepares the world technical consulting rules and has an important role in determining and practicing the strategic properties of “consultant - engineer” sector on behalf of its members4.
For the purpose of contributing to the development of the profession and preserving the balance of interests of its members, FIDIC issues various documents, standard contracts, and procedures for the benefit of consultants, contractors, employers, partners, subcontractors and its representatives. Also, FIDIC provides educational manuals, position papers and guidelines regarding transaction documents in order to organize the relation between the contracting parties, to standardize the terminology and to ensure the unity and the utility of these documents5. The templates of model contracts of said FIDIC documents are among the most preferred ones in practice. The abovementioned publications can be examined under several different groups.
A. The Red Book
The model of the contracts and their specifications regarding civil engineering works are set in “Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer” namely the “Red Book”. As well as being the most preferred FIDIC document in the international field, it is specially designed for the main purpose of regulating the relations between the employer and the contractor and for the situations where the employer undertakes the general design and the contractor materializes some blueprints. The main subject covered in the Red Book is how the works will be carried out by the contractor. In the contract model specified here, although the employer bears the engineering risks of the work, the alternative solutions which the contractor may offer are not to be taken into consideration and the contractor will not be allowed to use his know-how.
B. The Yellow Book
“Conditions of Contract for Plant & Design-Build for Electrical and Mechanical Plant and for Building and Engineering Works Designed by the Contractor” namely the “Yellow Book”, which is composed of contract examples regarding the electronic and mechanical plants and contract examples regarding design and make/ turn-key type projects that are set out together, is regarded as useful particularly for the works in which the contractor is not bound to be restricted with the design and standards set by the employer.
C. The Silver Book
Being named as “Conditions of Contract for EPC Turnkey Projects”, the “Silver Book” sets out the rules that apply to the infrastructure works related to turnkey contracts.
D. The Green Book
Although it is mostly suitable for the short-term (within six months), low-in-price (lower than USD 500,000), recurring and simple construction works, “The Short Form of Contract” namely the “Green Book” is set out both for the situations where the construction works can be carried out by the employer himself and in accordance with the desires of the employer, by the contractor6.
III. CONSTRUCTION CONTRACTS WITHIN THE CONTEXT OF THE FIDIC RULES
In Turkish law, the construction contract, by virtue of article 355 of the Turkish Code of Obligations (“TCO”) numbered 6098, is a contract of work. As per article 470 of the TCO, the contract of work is a contract whereby the contractor undertakes an obligation to carry out a work, and the employer, in return, an obligation to pay a price. The contractor, bearing the risks, and in return of a certain wage, undertakes an obligation to carry out a work in the construction contract. The construction contracts are not subject to a certain form, but in practice, it is common to see them made in written form7.
There are certain divergences between the provisions of the TCO and the FIDIC rules as regards to the contracting parties and the obligations of the contractor. The contracting parties of the contract of work set by the TCO are contractor and employer. In the FIDIC rules, however, the concept of “engineer” shows up. The engineer performs the contract, and there is an employment relation between him and the employer. The most important assignments of the contractor are the preparation phase and the delivery of the work. The FIDIC rules include the responsibilities and the obligations of the engineer extensively, and set the operations of the engineer as well8.
Since foreign contractors are preferred in large-scale construction projects especially in Turkey, the construction contracts have become connected to more than one legal system. Because of the increase in the contracts that contain the element of foreignness, and the technical and complex structure of the construction contracts; the need to use standard rules has emerged. The one that is used the most among these rules are the FIDIC rules.
The use of the FIDIC standard rules enables the parties to save time, and gives them the opportunity to benefit from an international know-how as well. If the parties decide to set the construction relation between them by using the FIDIC rules, these rules shall apply within the boundaries of the freedom of will. In case of any legal gap, the predetermined country’s law shall apply. Since the FIDIC is a private institution, the rules recommended by it, be it special or general, have no binding effect on their own. The parties, by free will, may adopt the rules as is or adopt them by modifying9.
IV. THE METHODS OF DISPUTE RESOLUTION SPECIFIED IN THE FIDIC RULES
In the course of or after the execution of the project, the disputes originating from some technical and/or contractual issues between the parties may occur, even if the construction contracts are prepared comprehensively and in detail. In the international construction contracts, the contracting parties being from different nationalities and thus these nationalities having different substantial law systems renders the dispute resolution process complicated, and sometimes, inoperative.
As stated previously, the arbitration in the FIDIC contracts is one of the methods of dispute resolution set out in the FIDIC rules. If the dispute cannot be solved through the DAB, the option of arbitration can then be resorted to. The arbitration for the dispute resolution manifests itself by the will of the parties, and concludes far more quickly compared to the state judiciary10.
A. The Mechanism of Dispute Resolution Set Out by the 1987 Edition of FIDIC
According to the method of dispute resolution set out by the 1987 edition of FIDIC, the dispute, before being sent to the arbitration immediately, shall be examined by the engineer. Although the decision made by the engineer is non-binding, it shall be binding if no objection to the decision is made within seventy days. The engineer shall make his decision within eighty-four days. If there is no such decision within eighty-four days, the period of objection of seventy days shall commence at the end of the eightyfourth day. In case of a timely objection, the process of “Amicable Resolution” shall begin. According to this, the parties are allowed for a period of fifty-six days for reconciliation. At the end of the fifty-sixth day, the parties may apply to an arbitration procedure which is subject to the rules of International Arbitration Association (“IAA”). In an event of a violation of the conclusive decision of the engineer, the parties may apply to the arbitration procedure, regardless of the abovementioned periods.
B. The Mechanism of Dispute Resolution According to the 5th Edition of FIDIC
The FIDIC rules, with its 1999 edition, by developing a sui-generis system regarding the disputes arising from construction contracts, put the DAB on charge of the dispute resolution. Since the parties are bound to exhaust this method before applying to the arbitration procedure, the arbitration procedure shall be applied only by the party(ies) who do not accept the decision of the DAB. The arbitration procedure commences following the fifty-sixth day of the non-acceptance declaration.
The DAB is an organ which could be helpful to the resolution of disputes by conciliation; and it is constituted of one or three persons that have the liberty to act independently from the parties. The fee of the DAB is paid by the employer and the contractor conjointly. The persons constituting the DAB are specified by the parties during the process of preparation of the contract. The parties may apply to the DAB to receive an opinion about any subject. Yet, it is impossible for a single party to apply to the DAB.In case of a dispute concerning the contract or the execution of the work, dispute shall be notified to the DAB in written form. Within eighty-four days from the day of the application, a justified decision regarding the dispute shall be made. In an event of no such decision being made within eighty-four days, each party could notify the other within twenty-eight days from the expiration of the period of the eighty-four days or from the date of the decision, that he will not stay bound by the decision of the board.
The decisions of the DAB are appealable to the arbitration. The party that is not willing to be bound by the decision may object to the decision within twenty-eight days from the date of the notification of the decision. If no such objection is made, the decision becomes conclusive and binds the parties. The party who objects to the decision shall apply to the arbitration.
V. INTERNATIONAL ARBITRATION
As an alternative to the state judiciary, the arbitration is a method of dispute resolution, mostly preferred in commercial disputes. In order for the dispute to be resolved by arbitration, the dispute must be available to be arbitrated, and the parties must agree that the dispute will be resolved by arbitration11. The main reasons why the method of arbitration is preferred especially in international commercial relations are as follows:
a. Arbitration provides a much faster dispute resolution compared to state judiciary. Since arbitration comes to a conclusion much faster most of the time, having their dispute resolved, the parties, in terms of commerce, evade losing any more time and money12.
b. It is possible for experts in their fields to be elected to the arbitration commission. In state judiciary, however, as required by the principle of natural judge, the parties, for resolution of their dispute, do not have the possibility to appoint judges that are experts in their fields13.
c. The decisions given as a result of arbitration have international validity, and after having a recognition and approval decision from the respective local court, they will be executed as if they were emanated from that local court.
d. By way of several international treaties, the recognition and the approval of the decisions of arbitration have become easier compared to the recognition and the approval of the court decisions of other countries14. At the present time, by virtue of “The Convention on the Recognition and Enforcement of Foreign Arbitral Awards” dated 1958, which more than one hundred and fifty nations are a party of, arbitration decisions may easily be recognized and approved in many countries in the world15.
e. The proceedings and decisions of arbitration are of confidential nature compared to court decisions. The principle of publicity16 is one of the principles that govern the procedure of state judiciary in Turkish Law. The decisions of arbitration, however, are not necessarily required to be published as it is the case in state judiciary17.
VI. APPLICABLE LAW TO THE ARBITRATION AND THE CHOICE OF ARBITRATION RULES
The institution of arbitration provides the parties with the liberty to choose the rules that shall apply to the procedure. By virtue of the Code of International Arbitration numbered 4686 of Turkey as well, in determination of the law regarding the validity of the arbitration agreement, the will of the parties shall be taken into consideration. If the parties choose a law, then that law shall have the priority in the application. In this sense, the use of arbitration for the resolution of disputes arising from construction contracts enables said rules to be specified by the free will of the parties, as it is accepted both in international standards and in Turkish law18. If the parties are of the same opinion regarding the application of the FIDIC rules, they are obligated to specify which law shall apply to their dispute, as it is stated in the second chapter where the specific principles of said rules are situated19.
After this phase, in case of the parties being agreed upon a specific law, the problem that which law shall be reference in determination of whether the law that applies to the substance of the dispute is valid or not is important. Ultimately, the validity of this matter will be subject to the chosen law, and in case the chosen law allows choosing a law, the law that is specified by the parties shall be valid20.
In FIDIC standard contracts, in case the parties do not specify the law to be applied to the substance, the question that which materials will be based on and which method will be used by the arbitration commission in determination of relevant law may arise. Pursuant to the FIDIC rules, in case the parties do not make any specification regarding the arbitration procedure, the rules of the IAA shall apply, and the law that is specified in said rules shall be accepted as the law that applies to the substance.
VII. CONCLUSION
In the field of international construction, FIDIC prepared, first in 1957, standard contracts for construction projects, in order to provide convenience to the parties, and to regulate in written form the rules that existed in practice and gained acceptance with time as a whole. Nowadays, in the international platform, the FIDIC standard contracts have become the most preferred and thus, the most continuous rules.
The FIDIC standard contracts, from their first edition in 1957 until now, are being regularly revamped in order to satisfy the needs of the parties with respect to the innovations and the changes that occur both in national and global field. The four standard contracts comprising of the Red Book, the Yellow Book, the Silver Book and the Green Book, have all been updated and published in 1999.
The most important and primary revision in the revamped edition of such books in 1999 is about dispute resolution. Before 1999, in the FIDIC standard contracts, as can be seen in the 1987 edition as well, there was a three-step dispute resolution system constituted of the application to the engineer, the application to friendly resolution and the phase of arbitration. However, as a result of the criticism that came from practice, FIDIC terminated the role of the engineer in dispute resolution process by setting the DAB which is constituted by impartial, independent and specialist persons, as the first step in dispute resolution. Consequently, a dispute shall be tried to be solved by amicable resolution method through the DAB; and in case of a failure, arbitration shall begin.
Accordingly, the method of arbitration shall be applicable only if the parties cannot not reach to an agreement through the DAB. The liberty of the parties to choose the law which applies to the dispute is an element of the mechanism of arbitration, and the FIDIC rules stipulate that, in case of no specification is made regarding said liberty, the law that the arbitration rules of IAA indicate, shall apply.
BIBLIOGRAPHY
Çağlar Dalmaz, “Uluslararası FIDIC Sözleşmelerinde Tahkim Hususunun İncelenmesi ve Bir Kavramsal Model Önerisi”, Sakarya University Institute of Natural Sciences, Master Thesis, June 2012
Ebru Tüzemen Atik, “FIDIC Kırmızı Kitap Kuralları Uyarınca İnşaat Sözleşmelerinde Müteahhidin Sorumluluğu, Gazi Üniversitesi Hukuk Fakültesi Dergisi”, V. XVIII, N. 2, Ankara 2014
Erol Ertekin and İzzet Karataş, Uygulamada İhtiyari Tahkim ve Yabancı Hakem Kararlarının Tenfizi Tanınması, Ankara 1997.
Melis Şeremet, “İnşaat Sözleşmeleri ve FIDIC”, İstanbul Barosu Dergisi, V. 80, N. 4, Istanbul 2006
Tuna Çolgar, İnşaat Sektöründe Kullanılan Model Sözleşmeler Serisi, http://www.erdem-erdem.com/articles/insaat-sektorunde-kullanilan-modelsozlesmeler-serisi/, Last Access: 18.07.2016
Tunay Köksal, “Uluslararası İnşaat Sözleşmesi Modeli Olarak FIDIC İnşaat İşleri Sözleşme Şartları”, Abant İzzet Baysal Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, N. 20, Bolu 2010
Ziya Akıncı, Milletlerarası Tahkim, Ed. 4, Istanbul 2016
FOOTNOTE
1 Çağlar Dalmaz, “Uluslararası FIDIC Sözleşmelerinde Tahkim Hususunun İncelenmesi ve Bir Kavramsal Model Önerisi”, Sakarya University Institute of Natural Sciences, Master Thesis, June 2012, p. 9.
2 Ebru Tüzemen Atik, “FIDIC Kırmızı Kitap Kuralları Uyarınca İnşaat Sözleşmelerinde Müteahhidin Sorumluluğu”, Gazi Üniversitesi Hukuk Fakültesi Dergisi, V. XVIII, N. 2, Ankara 2014, p. 53.
3 Tüzemen Atik, p. 56.
4 Tunay Köksal, “Uluslararası İnşaat Sözleşmesi Modeli Olarak FIDIC İnşaat İşleri Sözleşme Şartları”, Abant İzzet Baysal Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, N. 20, Bolu 2010, p. 86.
5 Tuna Çolgar, “İnşaat Sektöründe Kullanılan Model Sözleşmeler Serisi”, 2014, http://www.erdem-erdem. com/articles/insaat-sektorunde-kullanilan-modelsozlesmeler-serisi/, Last Access: 18.07.2016.
6 Çolgar, İnşaat Sektöründe Kullanılan Model Sözleşmeler Serisi.
7 Melis Şeremet, “İnşaat Sözleşmeleri ve FIDIC”, İstanbul Barosu Dergisi, V. 80, N. 4, Istanbul 2006, p. 1553.
8 Şeremet, p. 1555.
9 Şeremet, p. 1556-1557.
10 Dalmaz, p. 8-9.
11 Ziya Akıncı, Milletlerarası Tahkim, Ed. 4, Istanbul 2016, p. 31.
12 Erol Ertekin/İzzet Karataş, Uygulamada İhtiyari Tahkim ve Yabancı Hakem Kararlarının Tenfizi Tanınması, Ankara 1997, p. 36.
13 Akıncı, p. 28.
14 Akıncı, p. 32.
15 Akıncı, p. 27.
16 Constitution of the Republic of Turkey Art. 141, The Code of Civil Procedure Art. 28.
17 Akıncı, p. 44.
18 Dalmaz, p. 69.
19 Dalmaz, p. 70.
20 Dalmaz, p. 71.
