Typical Sequence of Events in Agreement or Determination under Sub-Clause 3.7

Introduction

The FIDIC Yellow Book 2017 is a comprehensive guide for construction contracts, and Sub-Clause 3.7, titled “Agreement or Determination,” is a pivotal section that outlines the procedures for resolving disputes or claims. This article aims to provide a detailed breakdown of the typical sequence of events that occur under this sub-clause.

The Engineer’s Neutral Role (Sub-Clause 3.7)

The process starts with the Engineer, who is obligated to act neutrally between the Parties (the Employer and the Contractor). The Engineer’s role is not to favor one party over the other but to make fair and unbiased decisions. This neutrality is crucial for maintaining the integrity of the process and ensuring that both Parties feel their concerns are adequately addressed.

Initial Consultation to Reach Agreement (Sub-Clause 3.7.1)

Timeframe: 42 Days

Once the Engineer starts performing their duties under Sub-Clause 3.7, they have an initial 42 days to consult with both Parties to reach an agreement. This consultation is a collaborative effort, and the Engineer encourages open discussion between the Parties. The aim is to resolve the matter amicably without having to proceed to a formal determination.

Record of Consultation

The Engineer is also responsible for providing both Parties with a record of the consultation. This record serves as an official document that can be referred to later if needed. It ensures transparency and can be crucial if the matter escalates to a dispute.

Engineer’s Notice of Agreement

If an agreement is reached within the initial 42-day period, the Engineer issues a “Notice of the Parties’ Agreement.” This Notice is a formal document that outlines the terms of the agreement and is signed by both Parties. It serves as a binding resolution of the matter at hand.

No Agreement Reached (Sub-Clause 3.7.1)

Timeframe: 42 Days

If no agreement is reached within the initial 42 days, or if both Parties advise the Engineer that an agreement is unlikely, the Engineer proceeds to make a determination. This is a more formal process and involves a thorough review of the matter or claim.

Engineer’s Determination (Sub-Clause 3.7.2)

Timeframe: 42 Days

The Engineer has another 42 days to make a fair determination of the matter or claim. This determination is made in accordance with the Contract and considers all relevant circumstances. The Engineer issues a “Notice of the Engineer’s Determination,” which outlines the decision in detail, providing reasons and supporting particulars.

Time Limits (Sub-Clause 3.7.3)

The Engineer is bound by specific time limits for both reaching an agreement and making a determination. These time limits are usually 42 days but can be altered if proposed by the Engineer and agreed upon by both Parties. Adhering to these time limits is crucial for the smooth progression of the project and helps avoid unnecessary delays.

Error Correction (Sub-Clause 3.7.4)

Timeframe: 14 Days for Error Identification, 7 Days for Correction

If an error is identified in the Engineer’s Notice of agreement or determination within 14 days, the Engineer has an additional 7 days to issue a corrected Notice. This provision allows for the correction of typographical, clerical, or arithmetical errors and ensures the integrity of the process.

Dissatisfaction and Dispute Resolution (Sub-Clause 3.7.5)

Timeframe: 28 Days

If either Party is dissatisfied with the Engineer’s determination, they have 28 days to issue a “Notice of Dissatisfaction.” This Notice outlines the reasons for the dissatisfaction and serves as a precursor to formal dispute resolution mechanisms, such as referral to the Dispute Adjudication/Avoidance Board (DAAB).

Final and Binding

If no “Notice of Dissatisfaction” is issued within the 28-day period, the Engineer’s determination becomes final and binding on both Parties. This finality is crucial for the continuation of the project and ensures that both Parties adhere to the agreed terms.

Diverse Interpretations of Sub-Clause 3.7: Agreement or Determination

Purpose

The purpose of Sub-Clause 3.7 is to provide a structured framework for resolving disputes or claims between the Parties. It outlines the roles, responsibilities, and timelines for the Engineer and the Parties involved.

Implications

The implications of this clause are far-reaching. A well-executed 3.7 process can lead to amicable resolutions, thereby avoiding costly and time-consuming legal battles. However, failure to adhere to the timelines and procedures can result in deemed determinations that may not be favorable to one or both Parties.

Primary Aspects

The primary aspects of this clause include the Engineer’s neutral role, the consultation process, the determination process, and the timelines for each stage. Each of these aspects is crucial for the effective resolution of disputes or claims.

Expert Opinion

From an Expert Opinion, Sub-Clause 3.7 is often seen as a mini-dispute resolution process within the contract. It allows for matters to be resolved at the project level, without escalating to formal dispute resolution mechanisms, thus saving time and resources.

Interaction with Other Clauses

Sub-Clause 3.7 doesn’t operate in isolation; it interacts significantly with other clauses, particularly those related to claims and disputes. For instance:

• Sub-Clause 20.1 (Claims): The initiation of a claim under Sub-Clause 20.1 often leads to the activation of the procedures under Sub-Clause 3.7.
• Sub-Clause 21.4 (Obtaining DAAB’s Decision): If either Party is dissatisfied with the Engineer’s determination under 3.7, they may proceed to obtain a DAAB’s decision under Sub-Clause 21.4.

These interactions create a web of interconnected procedures that collectively contribute to the project’s legal and operational framework.

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Key Points to Keep in Mind

1. Timelines: Always adhere to the timelines specified in Sub-Clause 3.7. Failure to do so can result in deemed determinations or disputes.
2. Documentation: Keep thorough records of all consultations and communications. This can be invaluable if the matter escalates to a formal dispute.
3. Engineer’s Role: Understand the neutral role of the Engineer in this process. While the Engineer is employed by the Employer, under Sub-Clause 3.7, they are obligated to act neutrally.
4. Legal Implications: Be aware of the legal implications of each step. A misstep at any stage can have legal repercussions, including the activation of penalty clauses or the initiation of formal dispute resolution mechanisms.

Structured Checklists for Proficient Execution, Deployment, and Supervision of Sub-Clause 3.7

Checklist for Proficient Execution

Step No.	Task Description	Responsible Party	Timeline	Status
1	Review Sub-Clause 3.7	Both Parties & Engineer	Before Contract Signing	Pending/Complete
2	Initiate Consultation	Engineer	Within 42 days of relevant event	Pending/Complete
3	Record Consultation	Engineer	During Consultation	Pending/Complete
4	Issue Notice of Agreement	Engineer	If agreement within 42 days	Pending/Complete
5	Make Determination	Engineer	If no agreement within 42 days	Pending/Complete
6	Issue Notice of Determination	Engineer	Within 42 days of determination	Pending/Complete
7	Check for Errors	Both Parties & Engineer	Within 14 days of Notice	Pending/Complete
8	Issue Corrected Notice	Engineer	Within 7 days of error identification	Pending/Complete

Checklist to Assist in Applying and Overseeing Sub-Clause 3.7

Step No.	Task Description	Responsible Party	Reference Clause	Status
1	Confirm Engineer’s Neutrality	Both Parties	Sub-Clause 3.7	Pending/Complete
2	Monitor Consultation Process	Both Parties	Sub-Clause 3.7.1	Pending/Complete
3	Verify Timelines	Both Parties	Sub-Clause 3.7.3	Pending/Complete
4	Review Determination	Both Parties	Sub-Clause 3.7.2	Pending/Complete
5	Issue Notice of Dissatisfaction	Dissatisfied Party	Sub-Clause 3.7.5	Pending/Complete

Checklist to Guide and Monitor the Execution of Sub-Clause 3.7

Step No.	Task Description	Responsible Party	Deadline	Status	Notes
1	Initiate Sub-Clause 3.7 Process	Engineer	Upon relevant event	Pending/Complete	–
2	Conduct Consultation	Engineer	Within 42 days	Pending/Complete	Keep records
3	Reach Agreement or Make Determination	Engineer & Parties	Within 42 days	Pending/Complete	–
4	Issue Relevant Notices	Engineer	As per timelines	Pending/Complete	Check for errors
5	Monitor for Dissatisfaction	Both Parties	Within 28 days of determination	Pending/Complete	Issue Notice if needed

Detailed Explanation of Checklists

1. Checklist for Proficient Execution

• Step 1: Review Sub-Clause 3.7
  Before the contract is even signed, both Parties and the Engineer should thoroughly review Sub-Clause 3.7 to understand its implications and requirements.
• Step 2: Initiate Consultation
  The Engineer is responsible for initiating the consultation process. This should happen within 42 days of the event that triggers the need for an agreement or determination.
• Step 3: Record Consultation
  The Engineer should keep a record of the consultation process. This is crucial for transparency and can be referenced in case of disputes.
• Step 4: Issue Notice of Agreement
  If both Parties reach an agreement within the initial 42-day period, the Engineer must issue a Notice of Agreement.
• Step 5: Make Determination
  If no agreement is reached within the initial 42-day period, the Engineer must proceed to make a fair determination of the matter or claim.
• Step 6: Issue Notice of Determination
  The Engineer must issue a Notice of Determination within 42 days of making the determination.
• Step 7: Check for Errors
  Both Parties and the Engineer have 14 days to check for any errors in the Notice of Agreement or Determination.
• Step 8: Issue Corrected Notice
  If an error is found, the Engineer has 7 days to issue a corrected notice.

2. Checklist to Assist in Applying and Overseeing Sub-Clause 3.7

• Step 1: Confirm Engineer’s Neutrality
  Both Parties should confirm that the Engineer is acting neutrally, as mandated by Sub-Clause 3.7.
• Step 2: Monitor Consultation Process
  Both Parties should actively monitor the consultation process to ensure it is being conducted in accordance with Sub-Clause 3.7.1.
• Step 3: Verify Timelines
  Both Parties should keep track of the timelines specified in Sub-Clause 3.7.3 to ensure compliance.
• Step 4: Review Determination
  Both Parties should carefully review any determination made by the Engineer as per Sub-Clause 3.7.2.
• Step 5: Issue Notice of Dissatisfaction
  If either Party is dissatisfied with the Engineer’s determination, they have the right to issue a Notice of Dissatisfaction as per Sub-Clause 3.7.5.

3. Checklist to Guide and Monitor the Execution of Sub-Clause 3.7

• Step 1: Initiate Sub-Clause 3.7 Process
  The Engineer is responsible for initiating the Sub-Clause 3.7 process when a relevant event occurs.
• Step 2: Conduct Consultation
  The Engineer must conduct consultations within 42 days, keeping records for transparency.
• Step 3: Reach Agreement or Make Determination
  The Engineer and Parties aim to reach an agreement or make a determination within 42 days.
• Step 4: Issue Relevant Notices
  The Engineer must issue the relevant notices as per the timelines specified in the clause, and both Parties should check these for errors.
• Step 5: Monitor for Dissatisfaction
  Both Parties should monitor for any dissatisfaction within 28 days of receiving the Engineer’s determination and issue a Notice of Dissatisfaction if needed.

Flowcharts

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 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.

Scenario 1: Agreement Reached, Error Found and Corrected

Detailed Explanation of the Flowchart:

1. Start: Engineer starts duties (Sub-Clause 3.7)
   • Context: This is the initiation point where the Engineer starts performing duties under Sub-Clause 3.7.
   • Trigger: The activation of Clause 3.7 is triggered by a disagreement or issue that requires resolution.
   • Initial Action: The Engineer is notified, and the formal process under Clause 3.7 begins.
2. Parties’ agreement (Sub-Clause 3.7.1)
   • Objective: The Engineer consults with both Parties to facilitate an agreement.
   • Method: Consultations can occur jointly or separately with the parties involved.
   • Timeframe: The Engineer aims to facilitate an agreement within 42 days, as outlined in Sub-Clause 3.7.3.
3. Engineer’s Notice of agreement (Sub-Clause 3.7.1)
   • Documentation: If an agreement is reached within 42 days, the Engineer issues a formal “Notice of the Parties’ Agreement” under Sub-Clause 3.7.1.
   • Signature: This Notice is then signed by both Parties, making it official.
   • Next Step: The process moves to the error identification stage.
4. Notice of error by a Party/Engineer (Sub-Clause 3.7.4)
   • Error Identification: Within 14 days after the “Notice of the Parties’ Agreement” is issued, either Party or the Engineer can identify an error of a typographical or clerical or arithmetical nature.
   • Notification: A formal Notice is given under Sub-Clause 3.7.4 to identify the error.
   • Next Step: The process moves to the error correction stage.
5. Engineer’s Notice of corrected agreement (Sub-Clause 3.7.4)
   • Correction: The Engineer has 7 days to correct the identified error, as specified in Sub-Clause 3.7.4.
   • New Notice: A new “Notice of the Parties’ Corrected Agreement” is issued by the Engineer.
   • Finality: Once corrected, the agreement becomes final and binding on both Parties.
6. Final and Binding
   • Outcome: The corrected agreement is now considered final and binding on both Parties.
   • Closure: This marks the end of the process under Clause 3.7 for this scenario.

Scenario 2 with Durations: Early Advice, No Error in Engineer’s Determination

1. Engineer starts duties (Sub-Clause 3.7)
   • The flowchart correctly begins with the Engineer starting their duties under Sub-Clause 3.7. This is the initiation point for the entire process.
2. Initial 42 days Consultation
   • The flowchart now correctly combines the Engineer’s starting duties with the initial 42-day consultation period. This is in line with Sub-Clause 3.7.1 and Sub-Clause 3.7.3, which specify that the Engineer shall consult with both Parties to reach an agreement within 42 days.
3. Parties advise Engineer: No agreement (Sub-Clause 3.7.1(b))
   • If no agreement is reached within the initial 42-day consultation period, or both Parties advise the Engineer that no agreement can be reached, the Engineer proceeds to make a determination. This is accurately represented in the flowchart.
4. Period for Engineer’s determination
   • The flowchart correctly moves to the Engineer’s determination period, which is also within 42 days as per Sub-Clause 3.7.3.
5. Engineer’s Notice of determination (Sub-Clause 3.7.2)
   • If the Engineer makes a determination within the 42-day period, a formal “Notice of the Engineer’s Determination” is issued. This is correctly depicted in the flowchart.
6. No Notice of error and the duration
   • The flowchart accurately shows that if no error is identified within 14 days, the process moves to the next step.
7. Notice of Dissatisfaction (Sub-Clause 3.7.5)
   • Either Party has 28 days to issue a “Notice of Dissatisfaction” if they are not content with the Engineer’s determination. This is also accurately represented in the flowchart.
8. Final and Binding
   • The flowchart correctly ends with the Engineer’s determination becoming final and binding if no “Notice of Dissatisfaction” is issued within 28 days.

Scenario 3 with Durations: No Agreement, Error Found and Corrected

Flowchart Explanation for Scenario 3

1. Engineer starts duties (Sub-Clause 3.7)
   • The process begins with the Engineer initiating their duties under Sub-Clause 3.7. This is the starting point for the entire procedure.
2. Initial 42 days: No agreement reached (Sub-Clause 3.7.1)
   • The Engineer has an initial 42 days to consult with both Parties to reach an agreement. If no agreement is reached within this timeframe, the process moves to the next step. This is in line with Sub-Clause 3.7.1 and Sub-Clause 3.7.3.
3. 42 days: Engineer’s determination
   • The Engineer has another 42 days to make a fair determination of the matter or claim, as per Sub-Clause 3.7.2. This determination should be in accordance with the Contract and take into account all relevant circumstances.
4. 42 days: Engineer’s Notice of determination (Sub-Clause 3.7.2)
   • Within the 42-day period, the Engineer issues a formal “Notice of the Engineer’s Determination,” as outlined in Sub-Clause 3.7.2. This Notice should describe the determination in detail, providing reasons and supporting particulars.
5. 14 days: Notice of error found (Sub-Clause 3.7.4)
   • If an error is found within 14 days after receiving the Engineer’s Notice of determination, either by the Engineer or by a Party, the process moves to the next step. This aligns with Sub-Clause 3.7.4, which allows for the correction of typographical, clerical, or arithmetical errors.
6. 7 days: Engineer’s Notice of corrected determination (Sub-Clause 3.7.4)
   • The Engineer has 7 days to issue a “Notice of Corrected Determination” after finding the error or receiving a Notice about the error from a Party. This corrected determination replaces the original one for all intents and purposes under the Contract.
7. 28 days: Notice of Dissatisfaction (Sub-Clause 3.7.5)
   • Either Party has 28 days to issue a “Notice of Dissatisfaction” if they are not content with the Engineer’s corrected determination. This is in accordance with Sub-Clause 3.7.5.
8. Final and Binding
   • If no “Notice of Dissatisfaction” is issued within the 28-day period, the Engineer’s corrected determination becomes final and binding on both Parties.