Comprehensive Analysis of Clause 3.7 “Agreement or Determination” in the FIDIC Yellow Book 2017

Diverse Interpretations of Clause 3.7

Purpose

Clause 3.7 is designed to provide a structured mechanism for resolving disagreements or making determinations between the Employer and the Contractor. It acts as a safeguard to ensure that both parties have a fair chance to present their case, primarily through the Engineer.

Implications

The implications of this clause are significant. For instance, if the procedures and timelines are not followed, a deemed determination could occur, which may not be favorable for either party. This could lead to further disputes and even legal action.

Primary Aspects

1. Consultation (3.7.1): The Engineer must consult with each party in an attempt to reach an agreement. The consultation should be initiated as soon as a disagreement arises.
   • Timeframe: Immediately upon disagreement.
2. Engineer’s Determination (3.7.2): If no agreement is reached, the Engineer must make a fair determination in accordance with the contract.
   • Timeframe: Within 42 days after receiving the last of the disagreement, claim, or any additional particulars.
3. Time Limits (3.7.3): This subclause specifies that if the Engineer does not give notice of agreement or determination within the relevant period, they are deemed to have given notice of a determination rejecting the disagreement or claim.
   • Timeframe: 42 days is the default period, unless otherwise stated in the contract.
4. Correction of Errors (3.7.4): Allows for corrections in the agreement or determination for typographical or arithmetical errors.
   • Timeframe: Within 28 days of the notice of determination.
5. Dissatisfaction (3.7.5): Either party can express dissatisfaction with the Engineer’s determination.
   • Timeframe: Within 28 days after receiving the determination.

Expert Opinion

Legal experts often advise parties to be extremely vigilant about the 42-day timeframe for determinations and the 28-day timeframe for expressing dissatisfaction or correcting errors. These timeframes are not just guidelines but contractual obligations that can have legal repercussions.

Interaction with Other Clauses

1. Clause 3.7 and Clause 20.1 (Claims): The determination process in Clause 3.7 is often triggered when there are claims under Clause 20.1. Both clauses should be read in conjunction to fully understand the claims process.
2. Clause 3.7 and Clause 21.4 (Dispute Avoidance/Adjudication Board): If a party is dissatisfied with a determination under Clause 3.7, it can be escalated to a Dispute Avoidance/Adjudication Board under Clause 21.4.

Main Points to Keep in Mind

1. Timelines: The 42-day default period for determinations and the 28-day period for dissatisfaction or corrections are non-negotiable and must be strictly adhered to.
2. Documentation: Keep thorough records of all consultations, disagreements, and notices. This is crucial for any future legal proceedings.
3. Legal Compliance: In the United States, make sure that all determinations comply with federal laws like the Federal Acquisition Regulations (FAR), state-specific building codes, and environmental laws such as the Clean Air Act and the National Environmental Policy Act (NEPA).
4. Expert Consultation: Given the complexity and potential legal implications, consulting with experts in FIDIC contracts and U.S. construction law is highly advisable.

Real-World Case Studies on Clause 3.7: Agreement or Determination

Case Study 1: Highway Expansion Project in Texas

Scenario:

A Contractor was hired to expand a highway in Texas. During the project, they encountered an unexpected underground utility line that wasn’t documented in the initial plans. This led to a disagreement between the Contractor and the Employer about who should bear the additional costs.

Application of Clause 3.7:

The Engineer initiated a consultation under 3.7.1 to resolve the disagreement. Both parties presented their arguments, but couldn’t reach an agreement. The Engineer then had 42 days to make a determination under 3.7.2. On the 40th day, the Engineer determined that the Employer should bear 60% of the additional costs, citing local utility mapping errors as a contributing factor.

Outcome:

The Employer expressed dissatisfaction within the 28-day window under 3.7.5, but did not escalate the matter further. The project continued with the Employer bearing the additional costs as determined.

Case Study 2: School Building Renovation in Florida

Scenario:

A Contractor was renovating a school building in Florida. The Employer insisted on using a specific type of eco-friendly paint, which was more expensive than initially budgeted. A disagreement arose over who should cover the extra cost.

Application of Clause 3.7:

Consultations under 3.7.1 failed to resolve the issue. The Engineer then had 42 days to make a determination. However, the Engineer missed this deadline.

Outcome:

According to 3.7.3, the Engineer’s failure to make a determination within 42 days was deemed a rejection of the Contractor’s claim. The Contractor then had 28 days under 3.7.5 to express dissatisfaction, which they did. The matter was then escalated to a Dispute Avoidance/Adjudication Board.

Case Study 3: Wind Farm Construction in California

Scenario:

A Contractor was building a wind farm in California. They claimed that new state environmental regulations required additional safety measures, leading to delays and increased costs. The Employer disagreed, arguing that the Contractor should have anticipated these changes.

Application of Clause 3.7:

The Engineer initiated consultations under 3.7.1 but couldn’t get both parties to agree. A determination was made within the 42-day period under 3.7.2, stating that the Contractor was entitled to an extension but not additional payment.

Outcome:

Both parties accepted the Engineer’s determination, avoiding the need for further dispute resolution mechanisms. The project was completed with a slight delay but without additional costs to the Employer.

Making it Accessible:

1. Highway in Texas: Think of hitting a surprise roadblock on a road trip. The Engineer acted like a GPS, recalculating the route so both the Contractor and Employer knew how to move forward.
2. School in Florida: Imagine ordering a pizza and then deciding you want extra toppings. Who should pay for them? The Engineer didn’t decide in time, so it was as if they said, “No extra toppings allowed.”
3. Wind Farm in California: Picture building a sandcastle and then being told you have to make it hurricane-proof. The Engineer decided that the Contractor had extra time to build, but wouldn’t get extra money for the additional work.

Flowchart

Here is the revised flowchart illustrating the process associated with Clause 3.7: Agreement or Determination:

Detailed Explanation of the Revised Flowchart:

1. Start: Disagreement Arises: This is where a disagreement between the Contractor and the Employer triggers Clause 3.7.
2. Consultation (3.7.1): The Engineer initiates a consultation.
   • Agreement: If an agreement is reached, the process ends.
   • No Agreement: If no agreement is reached, the process moves to the Engineer’s determination.
3. Engineer’s Determination (3.7.2): The Engineer has 42 days to make a determination.
   • Within 42 Days: If the Engineer makes a determination within this timeframe, the outcome can either be accepted or lead to dissatisfaction.
   • Missed 42 Days: If the Engineer misses the 42-day deadline, it is deemed a rejection.
4. Outcome Accepted: If both parties accept the Engineer’s determination, the process can either end or move to expressing dissatisfaction.
   • No Dissatisfaction: If there’s no dissatisfaction, the process ends.
   • Dissatisfaction within 28 Days: If dissatisfaction is expressed within 28 days, the matter may be escalated.
5. Deemed Rejection (3.7.3): If the Engineer fails to make a determination within 42 days, it is considered a rejection. Dissatisfaction can be expressed within 28 days.
6. Express Dissatisfaction (3.7.5): Either party has 28 days to express dissatisfaction, leading to the matter being escalated for further dispute resolution.
7. End: The process concludes either with an agreement, an accepted determination, a deemed rejection, or escalation of the matter for further dispute resolution.

1. Start: The process begins when a fully detailed claim is received under Clause 20.2.4 or an interim or final fully detailed claim is received under Clause 20.2.6.
2. Engineer’s Role: The Engineer proceeds under Sub-Clause 3.7 to agree or determine the claim. This involves assessing additional payment or reduction in the Contract Price and/or extension of Time for Completion or Defects Notification Period (DNP).
3. Notice from Engineer: If the Engineer has previously given a Notice under Sub-Clause 20.2.2 or 20.2.4, the claim still needs to be agreed or determined under this clause.
4. Consideration of Circumstances: The Engineer may consider various circumstances like prejudice to the other party due to late submission, prior knowledge of the event, or circumstance giving rise to the claim. These are not binding but may be considered.
5. Need for Additional Particulars: If the Engineer requires more details to make a determination, a Notice is sent to the claiming party outlining what additional particulars are needed.
6. Time Limits: The Engineer must still give a response on the contractual or legal basis of the claim within the time limit specified in Sub-Clause 3.7.3.
7. Submission of Additional Particulars: The claiming party must submit the additional particulars as soon as practicable after receiving the Notice.
8. Final Determination: The Engineer then proceeds to make the final agreement or determination, taking into account the additional particulars if any.
9. End: The process concludes with the Engineer’s final determination or agreement on the claim.

Detailed Explanation of the Flowchart:

1. Start: This is where a disagreement arises between the Contractor and the Employer, triggering the need for Clause 3.7.
2. Consultation to reach agreement: The Engineer initiates a consultation with both parties to try and reach an agreement.
   • Within 42 days: The Engineer has 42 days to facilitate an agreement or make a determination.
3. Agreement Reached: If an agreement is reached within 42 days, the Engineer issues a “Notice of the Parties’ Agreement.”
   • Final and Binding: The agreement becomes final and binding unless an error is found and corrected.
4. No Agreement: If no agreement is reached within 42 days, the Engineer proceeds to make a determination.
   • Engineer’s Determination: The Engineer makes a fair determination of the matter or claim.
     • Within 42 days: The Engineer has 42 days to issue a “Notice of Engineer’s Determination.”
5. Error Found in 14 days: If an error is found in the Engineer’s determination within 14 days, it is corrected.
   • Within 7 days: The Engineer has 7 days to issue a corrected determination.
     • Final and Binding: The corrected determination becomes final and binding.
6. No Error Found in 14 days: If no error is found within 14 days, the determination becomes final and binding.

Detailed Explanation of the Revised Flowchart:

1. Start: Disagreement Arises
   • Context: This is the point where either the Contractor or the Employer identifies a disagreement or issue that requires resolution.
   • Trigger: The activation of Clause 3.7 is triggered by this disagreement.
   • Initial Action: The Engineer is notified, and the formal process under Clause 3.7 begins.
2. Consultation (3.7.1)
   • Objective: The Engineer’s role here is to act as a neutral facilitator between the Contractor and the Employer.
   • Method: Consultations can occur jointly or separately with the parties involved.
   • Timeframe: The Engineer has 42 days to either facilitate an agreement between the parties or proceed to make a determination, as outlined in Sub-Clause 3.7.3.
3. Agreement in 42 days (Notice of Parties’ Agreement)
   • Best-Case Scenario: This is the ideal outcome where both parties reach an agreement within the stipulated 42 days.
   • Documentation: The Engineer issues a formal “Notice of the Parties’ Agreement,” which is then signed by both parties.
     • Error in 14 days: If an error is discovered in the agreement within 14 days, the process moves to the correction stage.
       • Correction in 7 days: The Engineer has 7 days to correct the error, as specified in Sub-Clause 3.7.4.
         • Final and Binding: Once corrected, the agreement is considered final and binding on both parties.
     • No Error in 14 days: If no error is found within 14 days, the agreement is considered final and binding.
4. No Agreement in 42 days (Engineer’s Determination 3.7.2)
   • Failure to Agree: This stage is reached if the parties fail to agree within 42 days.
   • Engineer’s Role: The Engineer then has the responsibility to make a fair determination of the matter or claim.
     • Error in 14 days: If an error is discovered in the determination within 14 days, it moves to the correction stage.
       • Correction in 7 days: The Engineer has 7 days to correct the error, as specified in Sub-Clause 3.7.4.
         • Final and Binding: Once corrected, the determination is considered final and binding on both parties.
     • No Error in 14 days: If no error is found within 14 days, the determination is considered final and binding.
5. Early Advice: No Agreement
   • Proactive Communication: This occurs when both parties proactively inform the Engineer that an agreement is unlikely.
   • Engineer’s Role: Similar to the “No Agreement in 42 days” scenario, the Engineer proceeds to make a determination.
     • Error in 14 days: If an error is discovered within 14 days, it moves to the correction stage.
       • Correction in 7 days: The Engineer has 7 days to correct the error, as specified in Sub-Clause 3.7.4.
         • Final and Binding: Once corrected, the determination is considered final and binding on both parties.
     • No Error in 14 days: If no error is found within 14 days, the determination is considered final and binding.

Sample Letters

Below are sample letters for different scenarios related to Clause 3.7: Agreement or Determination. These letters can serve as templates for communications between the Contractor, the Engineer, and the Employer.

Sample Letter 1: Request for Consultation by Contractor

[Your Company Name]
[Your Address]
[Date]

[Engineer’s Company Name]
[Engineer’s Address]

Subject: Request for Consultation Under Clause 3.7.1

Dear [Engineer’s Name],

We are writing to bring to your attention a disagreement that has arisen between [Your Company Name] and [Employer’s Company Name] concerning [describe the issue briefly].

As per Clause 3.7.1, we kindly request a consultation to resolve this matter amicably.

We look forward to your prompt response.

Sincerely,
[Your Name]
[Your Position]

Sample Letter 2: Engineer’s Determination Letter

[Engineer’s Company Name]
[Engineer’s Address]
[Date]

[Contractor’s Company Name]
[Contractor’s Address]

Subject: Engineer’s Determination Under Clause 3.7.2

Dear [Contractor’s Name],

Following the consultation held on [Date], we have made a determination within the 42-day period as stipulated in Clause 3.7.2.

[Describe the determination in detail]

Please acknowledge receipt of this letter within 28 days if you have any dissatisfaction as per Clause 3.7.5.

Sincerely,
[Engineer’s Name]
[Engineer’s Position]

Sample Letter 3: Expression of Dissatisfaction by Employer

[Employer’s Company Name]
[Employer’s Address]
[Date]

[Engineer’s Company Name]
[Engineer’s Address]

Subject: Expression of Dissatisfaction Under Clause 3.7.5

Dear [Engineer’s Name],

We are writing to express our dissatisfaction with the determination made on [Date] under Clause 3.7.2.

As per Clause 3.7.5, we are expressing our dissatisfaction within the 28-day period and request that this matter be escalated for further dispute resolution.

Sincerely,
[Employer’s Name]
[Employer’s Position]

Structured Checklists in Tabular Format

Checklist 1: Proficient Execution of Clause 3.7

Step	Action Item	Responsible Party	Timeframe	Notes
1	Identify Disagreement	Contractor	Immediate	Document the issue
2	Initiate Consultation (3.7.1)	Engineer	Immediate	Schedule a meeting
3	Engineer’s Determination (3.7.2)	Engineer	Within 42 days	Make a decision
4	Communicate Determination	Engineer	Immediate	Notify both parties
5	Express Dissatisfaction (3.7.5)	Any Party	Within 28 days	If not in agreement

Checklist 2: Applying and Overseeing Clause 3.7

Step	Action Item	Responsible Party	Timeframe	Notes
1	Identify Disagreement	Contractor	Immediate	Document the issue
2	Consultation (3.7.1)	Engineer	Immediate	Schedule a meeting
3	Decision Made	Engineer	Within 42 days	Make a decision
4	Accept or Reject Decision	Both Parties	Immediate	Agree or disagree
5	Escalate if Needed (3.7.5)	Any Party	Within 28 days	If not in agreement

Checklist 3: Guide and Monitor the Execution of Clause 3.7

Step	Action Item	Responsible Party	Timeframe	Notes
1	Identify Disagreement	Contractor	Immediate	Document the issue
2	Consultation (3.7.1)	Engineer	Immediate	Schedule a meeting
3	Engineer’s Determination (3.7.2)	Engineer	Within 42 days	Make a decision
4	Decision Made	Engineer	Immediate	Notify both parties
5	Express Dissatisfaction (3.7.5)	Any Party	Within 28 days	If not in agreement

FAQ

1. What is the purpose of Clause 3.7?

The purpose of Clause 3.7 is to provide a structured process for resolving disagreements between the Contractor and the Employer. It outlines the roles and responsibilities of the Engineer in facilitating consultations and making determinations.

2. What happens during the consultation phase under Clause 3.7.1?

During the consultation phase, the Engineer initiates a meeting with both the Contractor and the Employer to discuss the disagreement and attempt to reach an amicable resolution.

3. What is the Engineer’s role in Clause 3.7.2?

Under Clause 3.7.2, the Engineer has 42 days to make a determination if no agreement is reached during the consultation phase. This determination is communicated to both parties.

4. What does “Deemed Rejection” mean under Clause 3.7.3?

“Deemed Rejection” occurs when the Engineer fails to make a determination within the stipulated 42-day period. In this case, the disagreement is considered rejected, and either party can express dissatisfaction.

5. How long do parties have to express dissatisfaction under Clause 3.7.5?

Either party has 28 days to express dissatisfaction after receiving the Engineer’s determination or after a “Deemed Rejection.”

6. What happens if dissatisfaction is expressed within 28 days?

If dissatisfaction is expressed within 28 days, the matter may be escalated for further dispute resolution mechanisms as outlined in the contract.

7. Can Clause 3.7 be modified in the contract?

While Clause 3.7 is a standard clause in FIDIC contracts, parties can negotiate modifications during the contract formation stage. However, any changes should be clearly documented and agreed upon by all parties.

8. Are there any real-world examples or case studies related to Clause 3.7?

Yes, various case studies and legal precedents exist that illustrate the application of Clause 3.7 in resolving disagreements in construction projects. These can be valuable learning resources.

9. How does Clause 3.7 interact with other clauses in the contract?

Clause 3.7 often interacts with other clauses related to dispute resolution, claims, and liabilities. It’s essential to read the contract in its entirety to understand these interactions fully.

10. Where can I find more information on Clause 3.7?

For a comprehensive understanding, it’s advisable to consult the FIDIC Yellow Book and seek legal advice. Online resources, forums, and expert commentaries can also provide valuable insights.