Ethical problems resulting from conflicts of interest are widespread among professions and construction is not spared. The FIDIC 1999 form of construction contract is a popular form used worldwide. Its structure, though, is such that the engineer administering the works is an agent of the employer, except as otherwise stated. The engineer is also quite often the designer of works. When an issue occurs between the parties, the engineer is required to act in a mediatory role in an effort to reach an agreement. When no agreement is reached, the engineer is then required to make a fair determination. In this role as determiner, the engineer is required not to act as an agent of the employer, but to use his professional skill and best endeavours to reach the right decision. The engineer, thus, has three roles to play, as an agent of the employer, as a mediator and as an independent professional. The three roles inevitably conflict, resulting in ethical problems. Surveys indicate that the engineer is a main cause of the claims and disputes which he/she then has to preside over by mediating and then making a determination. This is the core of this article.

The FIDIC Red Book has its origins in the English common law system5 and as such its legal principles are mostly derived from that system.6 The roots of the Red Book emanate from the

ICE Conditions of Contract which were then published by the Institution of the Civil Engineers in the 1950s,7 in the UK.

Under sub-clause 3.1 of the Red Book 1999, the engineer acts an agent of the employer except in circumstances that are stated under the Conditions of Contract. Sub-clause 3.5 and any other relevant provisions of the Conditions of Contract obligates the engineer to consult with each Party in an attempt to reach agreement. There is no universal agreement as to what this sub-clause entails but most experts agree that the requirement involves the engineer acting as mediator, facilitator, or conciliator.8 For the purpose of this article, hence forth, the requirement in the provision will be taken as meaning mediation. Further on, under the same sub-clause, where the parties fail to reach an agreement, the engineer is then required to make a fair determination.

The engineer, therefore, has three roles to play under Red Book 1999; that of an agent of the employer, that of a mediator on issues as between the parties and that of deciding issues where there is failure by the parties to reach an agreement.

As an agent, the engineer owes the ordinary duties of agent to the employer who is the principal.9 In that capacity, the engineer gives effect to the principal’s wishes and carries out their instructions.10

In making a fair determination, the engineer, under English law, is referred to as a “decision-maker”.11 This role requires the engineer to use his professional skills and utilise best endeavours to reach the right decision and not necessarily a decision in favour of his principal, the employer.12

There are many issues under sub-clause 3.5, that may require the engineer to mediate and make a determination under the provisions of 37 sub-clauses in the Red Book 1999.13 Mediation is a precondition to the determination.14 The determination is a precursor to a Dispute Adjudication Board (DAB) referral.15

It is often argued that conflicts of interest are such a common and inevitable problem that the resulting ethical problems should be ignored. This position is particularly persuasive where it is believed that the professionals involved are best equipped to deal with the conflicts of interest and the resulting ethical issues.17

This belief that professionals are best equipped to deal with conflicts of interest and the ethical issues that follow applies to the engineer under the Red Book 1999 as it is does other professionals. The difference with most other situations is that, under the Red Book 1999, the conflicts of interest result from the written contractual agreement between the parties. The engineer is, thus, unavoidably conflicted due to the provisions under the terms of the contract. Regardless of the contractual source of the conflicts of interest, ethical consequences follow.18

According to a survey released in 2022, carried out by HKA, a leading global consultancy in risk mitigation and dispute resolution in the construction sector, the top causes of claims or disputes are as listed in Table 1 below.21 The survey published under the brand, Crux Insight, covers 1,400 projects in 94 countries22 over a period of 12 years from 1997 to 202123 and provides an analysis of claims and dispute causation.

The survey covers bespoke and major forms of contract used in construction including various FIDIC contracts. The majority of the forms under the survey are bespoke, accounting for 50.3 per cent, while FIDIC forms stand at 19 per cent. The rest is shared between JCT – 9.9 per cent, AIA – 8.6 per cent and NEC – 3.1 per cent, with other lesser-known forms of contract

making up the balance.24 The different FIDIC forms have more or less similar provision when it comes to the engineer’s involvement in mediation and determination.

Causation factors 2 to 6 are identified as contract interpretation issues, contract management and/or administration, design information was issued late, design was incomplete, and design was incorrect. These causation factors are directly linked to the role of the design consultant, who designs the works and produces the contract documents, and the contract administrator who is also sometimes referred to as the supervising consultant. The design consultant may be an engineer or architect and a contract administrator will also usually be an engineer or architect.25 To note is that it is not always the case that the design consultant and the contract administrator are the same person or entity. The design consultant may be different to the contract administrator, but in many instances, it is the same legal person as already mentioned above.26 The term, contract administrator, is a phrase used for convenience, to refer to a legal person or firm under a construction contract that is responsible for the administration of the contract, including issuing of instructions to the contractor and certifying the value and quality of work performed by the contractor.27

This may also be the person who is the first point of contact in the resolution of claims and disputes. The term contract administrator covers many other terms used in the construction industry.28

Under the Red Book 1999, a dispute under sub-clause 3.5 will occur only when a party is dissatisfied with a determination and the matter is referred to the Dispute Adjudication Board under sub-clause 20.4. Under English law, however, a dispute occurs when one party to a contract is not prepared to accept the other party’s position on an issue.29 Under this rule, it follows that the failure of mediation results in a dispute which is then decided, at first instance, by the engineer’s determination. The reference to a Dispute Adjudication Board and Arbitration are further steps towards final settlement of a dispute.

Another way of interpreting the survey results is that other than the change in scope, which is the responsibility of the employer, the top five causes of claims and disputes are those attributable to and under the control of the design consultant or contract administrator. To note, however, is that the second most common cause, contract interpretation issues, covers both parties to the contract as well the contract administrator and there is no way of knowing from the survey each party’s contribution to the causation.30

To put the problem in context, HKA state that the project capital expenditure totals over US$2 trillion with US$73 billion being disputed costs, while the extension of time claimed amounts to a colossal 750 years.31 The report, however, does not assign a claim or dispute figure to each of the categories of the causation factors.

In other surveys conducted by Arcadis,32 published as the Global Construction Dispute Report starting in 2011, the causation factors attributable to the design consultant and contract administrator appear in the top three, except in the 2021 report. Table 2 below shows the causation factors and rank.

The Arcadis Global Construction Dispute Reports shows that the global average dispute value over a four-year period was 2017 – US$43.4 million, 2018 – US$33.0 million, 2019 – US$30.7 million, 2020 – US$54.3 million, 2021 – US$ 52.6 million.

Two other studies show a similar trend. In a survey by Queen Mary University of London in conjunction with Pinsent Masons,33 respondents were asked to identify, from a list of fourteen possible options, the factors which had commonly been the causes of international construction disputes. Respondents were permitted to select one or more causes.

The main causes of disputes, based on the respondents’ experience were:

Two of the top four causes can also be directly linked to design consultants who prepare the designs and the contract documents, or the contract administrator, being poor contract drafting and poor contract management, respectively.

In the 2022 Construction Adjudication in the UK: Tracing trends and guiding reform report,34 by the Centre of Construction Law and Dispute Resolution at King’s College London,

individuals were asked to identify the leading causes of disputes and heads of claim in construction adjudication. The number one cause at 49 per cent was inadequate contract administration, with inadequate contract documentation at 23 per cent (no 7), inadequate design documentation 22 per cent (no 8), and inaccurate design information 20 per cent (no 9).

The report prompted Lord Justice Coulson of the Royal Courts of Justice in England, in a foreword, to state that:

The findings in these four reports/surveys show a general trend that supports the contention that consultants who design and prepare contract documents and contract administrators are responsible for many of the claims and disputes that occur on construction contracts worldwide. There is no reason to believe that the causation factors leading to claims and disputes under Red Book 1999 will show a different trend, as the four reports show that issues caused by design consultants and contract administrators occur worldwide, regardless of the form of contract in use.

The late issue of drawings and instructions will entitle the contractor to Extension of Time for Completion under sub-clause 8.4(b)36 and cost under sub-clause 1.9.37

Where there are design errors/incorrect designs, ambiguities in contract documents, incomplete/inadequate designs or changes to the design, performance of work may be delayed pending resolution and will entitle the contractor to both Extension of Time for Completion under sub-clause 8.4(e) and/or additional payment as the issues are in connection with the contract under sub-clause 20.1. Sub-clause 8.4(e) covers any delay, impediment or prevention caused by or attributable to the employer or, the employer’s personnel or the employers other contractors on Site. The engineer is by definition the employer’s personnel.38

Some of the factors connected to the design and ambiguities may also lead to variations which may entitle the contractor to Extension of Time for Completion under sub-clause 8.4(a).

With valid contractors notices in place, and to repeat, the engineer is required under sub-clause 3.5 to agree or determine the issue or claim by first attempting to mediate between the parties in an endeavour to reach agreement. A failure to agree will result in the engineer making a fair determination.

Hence, the creator of the issue or claim affecting the contractors rights has to, under the authority of the contract, mediate and decide or determine the issue to either deny or give the contractor Extension of Time for Completion with or without costs or additional payment. Costs and additional payment may be given in some instances without an extension of time. The engineer is clearly conflicted as he created the issue or claim in which he stands as mediator and determiner. Even though the contract permits the engineer to act in such a

manner, ethical questions follow because the person who created the issue being mediated or determined is the same person to decide on the issue.

The employer also has entitlements to any payment under any clause of the Conditions or otherwise in connection with the contract, and/or to any extension of the Defects Notification Period under sub-clause 2.5. There are 18 such sub-clauses under the Conditions.39

With a valid notice issued by the employer, the engineer is also required to mediate and determine the issues or claims under sub-clause 2.5. The engineer who is under a separate contract with the employer to provide design and/or contract administration services and paid by them40 is also required to mediate the issues and if required make a determination. This again is a clear case of conflict of interest albeit permitted by the terms of construction contract.

The engineer’s determination though is not final and a party who is aggrieved with the decision can refer the issue to a Dispute Adjudication Board41 and if still not happy with that decision as well, refer the issue to arbitration.42 By referral to a Dispute Adjudication Board, that issue or claim becomes a dispute under the contractual machinery, but the conflicted engineer will have been the cause of that dispute.

These further dispute resolution processes, though, don’t make the initial process under the engineer ethical nor do they remove the conflict of interest.

It is worth noting that mediation, as is practiced, is conducted by a neutral third party,43 who is likely to have pre-requisite training,44 unlike most engineers. The engineer has to navigate his way from an interest-based dispute resolution process, which mediation is, to a rights-based system, which determination is,45 whenever necessary, even where the problem is caused by them in the first place. In an article in 2018 Gillion and others commented that the mediation process under the FIDIC 1999 Red Book is often seen as a mere formality performed by the engineer before making a determination. 46 It is suggested that the lack of mediation training by engineers is a contributor to the situation above pointed out by Gillion and others. It is also unethical for an engineer to present themselves as having the capability to mediate, which they do under the agreement with the employer to provide contract administration services, only to pay lip service to the process.47

It is a well-known fact that the individual members of the associations, the Consulting Engineers, also act as Engineers under the Red Book 1999. Furthermore, the code includes the following principles that require the consulting engineer to:

FIDIC thus expects its members to adhere to its Code of Ethics even though they have no mechanism of policing the principles therein. Many are likely to end up as Engineers on a FIDIC contract, in particular the Red Book 1999, and as well as on other types of contracts.

There are a number of problems associated with the principles in the Code of Ethics with regard to the Red Book 1999. The first principle compels the engineer to inform the client of any potential conflict of interest that might arise in the performance of services to the employer/client. The Red Book 1999 has in-built conflicts of interest in the sense that the engineer, as shown above, is very likely to be the source of the claim or dispute which he has to mediate and thereon make a fair determination if necessary. It will be the odd engineer who brings up this conflict of interest with the employer in accordance with this principle.

As for the second principle, the engineer or contract administrator is paid by the employer to act as the contract administrator. The engineer thus accepts remuneration, which may well prejudice independent judgement, when mediating and making fair determination. As before, it will be the odd engineer who brings this conflict of interest up with the employer and points out the ethical dilemma.

Another principle FIDIC promotes is that the consulting engineer shall: “Act at all times in the legitimate interest of the client and provide all services with integrity and faithfulness.” It is argued that, under the circumstances under discussion, it is very difficult for the engineer to act with integrity and faithfulness given the conflicts of interest pointed out.

FIDIC also has a Conflict-of-Interest: FIDIC Policy Statement,49 whose opening statement states that:

The policy, though, does not acknowledge the conflicts of interest that are inherent in the Red Book 1999 and other FIDIC forms. Presumably, then, FIDIC considers the conflicts of interest under their forms as acceptable. However, the emphasis of the policy document leaves no doubt that it is designed for use for the feasibility and design stages of construction. The same may be said of the Code of Ethics. Both documents can quite easily be applied in feasibility and design stages without inherent conflicts between the terms in the FIDIC consulting services agreement (the White Book) and the Code of Ethics and the Conflict-of-Interest FIDIC Policy Statement.

The decisions in the cases have always been to keep the status quo, in that the courts have seen no reason to impugn the view that the contract administrator can perform the role of an agent, as well as that of a professional applying his skill in matters as between the parties.

However, in Amec Civil Engineering Ltd v Secretary of State for Transport,52 a case involving the ICE Conditions of Contract, in comments made in passing (obiter dictum), Lord Justice Rix stated at paragraph 80 that:

Lord Justice Rix’s statement, contrasting the role of certifier to that of the engineer as a settler of disputes, is important because that is a role, aside other duties, that Engineers perform regularly under FIDIC 1999 and other similar forms as contract administrators. As such, that role surely must be treated differently to the cases of contract administrators acting as certifiers only that have gone before the courts.

In the case of Scheldebouw BV v St James Homes (Grosvenor Dock) Ltd 53 at paragraph 21, Jackson J coined the phrase, “decision-maker”, to refer to a professional person retained by the employer with decision making functions. This was when asked to consider the functions and duties of a construction manager, a position more or less similar to that of the engineer under the Red Book 1999. Jackson J further stated that the decisions which the ‘‘decision-maker’’ makes are often required to be in the form of certificates, but this is not always the case as there are many contracts in which, as an example, extensions of time do not take the form of a certificate (as in certifiers).54

The judge also concluded that:

Jackson J did not consider the inherent conflict of interest that arises when the “decision-maker” is the cause of the issue being decided.

In the case of Re-Pinochet,58 a case involving the acts of one of their own, the English House of Lords (Supreme Court) restated the natural justice principles. Although various justices stated them differently, it all amounts to what Lord Browne-Wilkinson stated, which was that:

On the face of it there is no reason such principles should not apply to an Engineer under FIDIC Red Book 1999. This is because the engineer in many instances, as already pointed out, is the cause of the issue under mediation and determination, as such he is not independent of the cause of the claim or dispute. Having caused the problem in the first place, he is surely a party to the issues under mediation and as a determiner he is additionally sitting as a judge in his own cause, satisfying the first principle in Re-Pinochet.

As an agent of the employer and paid by them for all the services including the mediation and determination roles, the engineer is put in a difficult position resulting from his proximity with the employer, giving rise to the inevitable conclusion that his conduct or behaviour may give rise to a suspicion that he is not impartial, hence satisfying the second application of the principle.

There is no known concerted effort within the construction sector to critically examine the costs and benefits of the engineer being an agent of the employer, a mediator, and a determiner of issues between the employer and the contractor, given the fact that he is responsible for a lot of the claims and disputes arising out of construction contracts.

The lack of effort by the construction sector is explained by Argandona, in a 2004 conference presentation entitled “Conflicts of Interest: The Ethical Viewpoint” in which he stated that the belief that competent, well trained, and prudent professionals will make the right decisions even in conflict-of-interest situations is a fallacy. Argandona further stated that it has been found that agents “believe that they are capable of identifying and resisting the temptations arising from their own interests (or from their wish to promote the interest of others), when the evidence indicates that those capabilities are limited and tend to be unconsciously biased.” The position as stated by Argandona is a good explanation as to why the position of the engineer in the Red Book 1999 and other similar forms remains as it is as of today.

The common law courts have also been reluctant to apply such principles to the role of a contract administrator for a number of reasons.

In the first instance, as Lord Justice Rix stated in Amec Civil Engineering Ltd v Secretary of State for Transport, the cases hitherto decided are concerned with the contract administrator’s

function of certifying and not the role of settling or deciding claims or disputes.60 Settling and deciding claims and disputes or acting as “decision-maker”, is part of what the Red Book 1999 engineer or contract administrators do regularly under many types of contracts with common law origins.

Another reason given by the common law courts is that the parties are afforded proper safeguards through the independence and skill of the contract administrator to reach a decision that is fair.61 This assertion is clearly in conflict with the finding made by Argandona as already stated above.

Yet another reason is that the contract administrator is not required to act judicially and by extension is not therefore required to act within the principle of natural justice, as required of arbitrators and judges.62

To repeat for the sake of clarity part of what has been stated above, the engineer under the Red Book 1999 is required to make a determination in accor dance with the contract. The contract includes a provision under sub-clause 1.4 which states that: “The contract shall be governed by the law of the country (or other jurisdiction) stated in the Appendix to Tender. …” The governing law “will determine the validity and the enforceability of the contract and its terms, the rights and liabilities of the parties and the legal remedies as a consequence of the breaches of contract.”63 This in effect means that “the determination must express the rights and obligations of the parties, in accordance with the contract and the governing law.”64

It is suggested that the requirement for the determination to comply with the governing law, seems to imply that the engineer should act judicially. If this is not the case, it is further suggested, that this is an anomaly of great proportions. However, a complication that arises is that the engineer is appointed by the employer, and acts as his agent,65 a situation contradictory to that of an adjudicator, arbitrator or a judge, who are all independent of parties before them and who are required to act judicially.66

Seen from the perspective that the design consultant and the contract administrator are responsible for the top causation factors resulting in claims and disputes and given the obvious conflicts of interest and ethical dilemmas, to which the obligation to make determination in accordance with the governing law is added, this position is surely untenable.

The other reason is that the courts are reluctant to interfere in contractual arrangements where a contract provides for decision making functions to be carried out by the contract administrator such as mediation and determination, due to the sanctity of contract rules.67

Given the trend that clearly points towards the contention that many claims and disputes are caused by the design consultant and contract administrator and likely to be the same legal person, it is surely time to relook at the issue.

Given the ethical dilemmas that arise out of the conflicts of interest resulting from the three roles and the evidence that many claim and dispute caution factors emanate from designers and contract administrators, it is expected that, in the least, the article should provoke publishers of contract forms like FIDIC, employers, contractors, financiers and engineers and other construction professionals to rethink the contractual provisions.

It will no doubt help if the costs and benefits of the current contractual provisions are examined as an aid to deciding whether to adopt different contractual provisions to the current ones. This process will be more useful if the monetary cost of the causation factors attributable to contract administrators are known.

Examining the surveys, it is arguable that many disputes may be avoided if the engineer or a contract administrator was not the one to deal with claims and disputes of any kind. The cost impact attributable to the design consultant or contract administrator causation factors is unfortunately not quantified, but it would seem likely to be colossal worldwide. If that was a known quantity, then it will be easier to tell if the dispute resolution system as mandated under sub-clause 3.5 of the FIDIC Red Book 1999 is worthwhile, given that the causes of claims and disputes are likely to emanate from the engineer.

In ending, the engineer’s three roles; as an agent, as a mediator and as a determiner of issues under the FIDIC Red Book 1999 can be said to promote an (un)natural justice given the obvious ethical dilemma resulting from the conflicts of interest.