Source: https://www.juridice.ro/551553/the-romanian-public-procurement-contracts-based-on-fidic-conditions-of-contract-which-preliminary-procedure.html
Timestamp: 2019-10-18 03:53:50
Document Index: 663331283

Matched Legal Cases: ['art. 7', 'art. 7', 'art. 11', 'art. 2', 'Art. 297', 'art. 297', 'art. 297', 'art. 68', 'art. 1', 'art. 1', 'art. 1', 'art. 2', 'art. 7', 'art. 2', 'art. 7', 'art. 7', 'art. 7201', 'art. 7', 'art. 7', 'art. 7', 'art. 7', 'art. 7', 'Art. 7', 'art. 7', 'art. 7', 'art. 7', 'art. 7', 'art. 2', 'art. 7', 'art. 2', 'art. 7', 'art. 2', 'art. 2', 'Art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'Art. 11', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 2', 'art. 11', 'art. 2', 'art. 11', 'art. 11', 'art. 2', 'art. 11', 'art. 2', 'art. 2']

JURIDICE.ro » The romanian public procurement contracts based on FIDIC conditions of contract – which preliminary procedure?
The preliminary procedure which should be followed by a Contractor before the referral of its disputes with the Employer to the Court or the Arbitral Tribunal (as the case may be), and the statutory limitation periods which must be observed on this occasion continue to be two of the most controversial issues generated by the application of the public procurement contracts based on FIDIC Conditions of Contract in Romania.
This white paper provides a balanced, consistent and reasoned analysis of the applicable provisions of the Romanian Civil Code, Law no. 554/2004, Government Emergency Ordinance no. 34/2006, and Law no. 101/2016, explaining why relying on any discretionary and speculative interpretation of the relevant provisions of the Romanian laws promoted these days by various lobbyists, consultants and strategists put the Contractors in real danger to lose their entitlement to pursue their legitimate rights and interests arising from such public procurement contracts based on the FIDIC Conditions of Contract.
1. THE CURRENT APPROACH OF THE MATTER IN THE ROMANIAN CONSTRUCTION INDUSTRY AND THE FUTURE TRENDS
Due to what was considered for a long time being to be an issue created by the apparent contradiction between the provisions of different laws applicable to the Romanian public procurement contracts based on FIDIC Conditions of Contract on one hand, and between such provisions and those of the said contracts on the other, the Contractors were confronted with two major problems:
1. Which is the preliminary procedure that it should be followed before the referral of the claims / disputes against the Employer to the Court or the Arbitral Tribunal (as the case may be):
(a) The one provided by Law no. 554/2004 – The law of administrative contentious („Law no. 554/2004”);
(b) The one provided by Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract; or
(c) Both of them; and
(2) Which statutory limitation periods should be observed by the Contractors during the claims / dispute resolution procedures:
(a) The ones provided by the public procurement contracts based on FIDIC Conditions of Contract;
(b) The ones provided by Law no. 554/2004;
(c) The one provided by the Romanian Civil Code; or
(d) All of the aforementioned.
Even though that, similar to the enactments from other civil law countries, the Romanian Civil Code provides some clear rules for interpretation and settlement of the contradictory legal and contractual provisions, these rules were too easily forgotten when it came out the idea, which thereafter spread throughout the entire construction community, that the preliminary procedure provided by art. 7 of Law no. 554/2004 would not apply to the public procurement contracts based on FIDIC Conditions of Contract.
Under this interpretation, instead of the two statutory limitation periods of 6 months each provided by Law no. 554/2004, one for the referral of the preliminary complaint (pursuant to art. 7), the other for the referral of the contractual dispute to the Court or the Arbitral Tribunal (pursuant to art. 11), it was argued that it would be applicable the more favourable statutory limitation period of 3 years provided by art. 2.517 of the Civil Code.
The argumentations adopted by different practitioners in support of this idea were indeed ones of the most various and “innovative”. In a nutshell, there were three types of approaches:
(1) The first approach was based on the contention that even though the law explicitly states that the public procurement contracts are “assimilated to the administrative act”, such contracts “would represent in fact the private interest of the parties”, which would automatically trigger the application of the Civil Code provisions (the “private law”) instead of those of Law no. 554/2004 (the “public law”);
(2) The second approach, and the most popular within the construction community, was based on the assertion that an arbitration clause from a public procurement contract based on FIDIC Conditions of Contract would remove not only the jurisdiction of the Courts but also the preliminary procedure for the amicably settlement of disputes provided by Law no. 554/2004;
(3) By far the most extravagant approach, which explicably remained isolated within the construction industry to date, was the one pretending that due to the very short terms established for the fulfilment of various stages of the contractual preliminary procedure, Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract would be abusive, being inoperable under the Romanian law.
These argumentations worked for some time, especially because both the Courts and Arbitral Tribunals preferred to avoid the rejection of the Contractor’s claims against the Employer in the very early stages of the court / arbitral proceedings based on reasons related to non-compliance with the statutory limitation or to unproperly fulfilment of either the contractual or legal preliminary procedures for settlement of disputes without analyzing the merits of the claims.
Once the number of the court and arbitral cases has increased and the judges and arbitrators alike became more knowledgeable about how FIDIC Conditions of Contract actually operates under the Romanian public procurement laws and various applicable statutes of limitation, the approach of the Courts and Arbitral Tribunals has changed.
They became now more keen to consider the fulflilment of the preliminary legal and contractual provisions by the Contractor and to enforce the applicable statutes of limitation as strictly as the Romanian Civil Code actually requires, instead of the more liberal approach used before.
These recent changes in the Court and Arbitral Tribunal’s jurisprudence increased the importance of the correct understanding of the preliminary procedures and statutory limitation periods applicable to the public procurement contracts based on FIDIC Conditions of Contract, as well as of the strict compliance with such procedures and limitation periods, any failure in this regard putting the Contractors in real danger to lose their entitlement to pursue their legitimate rights and interests arising from such contracts.
2. HIERARCHY AND PRIORITY OF THE ROMANIAN LAWS APPLICABLE TO PUBLIC PROCUREMENT CONTRACTS BASED ON THE FIDIC CONDITIONS OF CONTRACT. BASIC RULES OF INTERPRETATION
The ranking of the main provisions governing the claims / dispute resolution procedures and statutory limitation periods under the Romanian law relevant to our analysis are the following:
(1) The Civil Code (contains the general rules and periods of the statutory limitation) and the Civil Procedure Code (provides the rules for court and arbitration proceedings);
(2) Law no. 554/2004 – The law of administrative contentious (provides the special statutory limitation periods applicable to the administrative acts and contracts which derogates from the general regime imposed by the Civil Code, and the special rules of procedure applicable to the administrative court cases which derogates from the general framework contained within the Civil Procedure Code);
(3) Emergency Government Ordinance no. 34/2006 on the award of public procurement contracts, public works concession contracts and service concession contracts (“E.G.O. no. 34/2006”) applicable to the court and arbitration cases initiated until 26 May 2016; or, alternatively,
Law no. 101/2016 on remedies and means of appeal in connection with the award of public procurement contracts, sectorial contracts and concession contracts for works and concessions of services, as well as for the organization and functioning of the National Council for the Settlement of Complaints („Law no. 101/2016”) applicable to the court and arbitration cases initiated after 26 May 2016;
(Both contain special rules of procedure applicable to the administrative court cases resulted from the performance of public procurement contracts which derogates to some extent from the regime imposed in this regard by Law 554/2004);
(4) The public procurement contracts based on FIDIC Conditions of Contract.
As a matter of principle the parties may derogate to some extent by contractual provisions from the rules and limitation periods provided by the more general enactments located above in the aforementioned hierarchy, if such enactments allow it.
Under the Romanian law this derogation must be made in an explicit and unequivocally manner. Absent any clear statement in the contracts that the parties understood to deviate by their agreement from the relevant provisions of the law cannot be interpreted in any case as being such derogation.
In the same manner, even though the parties explicitly derogate from some provisions of the applicable laws, it cannot be construed in any case that they derogate implicitly also from other provisions which were not expressly stated into their contracts.
Whenever the provisions of the contracts are silent, they will be completed accordingly by the applicable provisions of the law located at the next level of the hierarchy. If the provisions of such law are also silent, it will become applicable the provisions of the next level law, and so on and so forth.
Last but not least, in case of a contradiction between the contractual provisions and law provisions, the contractual ones will have priority.
In the event of a contradiction between the provisions of different laws located at different levels of the hierarchy, the “special” law (i.e. the law located at the lowest level of the hierarchy between the two) will have priority in front of the more “general” law.
In the case at hand, whenever the Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract are silent, its provisions will be accordingly completed by the applicable provisions of E.G.O. no. 34/2006 / Law no. 101/2016, of Law no. 554/2004 and Civil Code, as the case may be. Whenever it will be a contradiction between something stated in Clause 20 and the legal provisions of a law, the contractual provisions will have priority in accordance with the aforementioned rules provided by the Romanian laws.
3. THE RELATIONSHIP BETWEEN THE CONTRACTUAL PRELIMINARY PROCEDURE PROVIDED BY CLAUSE 20, THE PRELIMINARY PROCEDURE PROVIDED BY LAW NO. 554/2004 AND THE STATUTORY LIMITATION RULES AND PERIODS PROVIDED BY CIVIL CODE
The settlement of disputes regarding the execution, annulment, termination, rescission or unilateral termination of the public procurement contracts is done according to the provisions of E.G.O. no. 34/2006 for the court and arbitral cases in progress on 26 May 2016, to the cases initiated after this date being applicable the provisions of Law no. 101/2016.
The aforementioned enactments contain several special rules derogating in some regards from the general applicable legal framework imposed by the Civil Procedure Code, e.g. with regards to the stamp duties and procedural timeframe applicable to the disputes resulted from public procurement contracts, but do not contain any provisions regarding the preliminary procedure that should be followed or the statute of limitation that must be observed in case of these kind of disputes.
Under these circumstances, the following issues were raised:
(1) Would it be the preliminary procedure provided by Law no. 554/2004 applicable to the disputes resulted from the public procurement contracts based on FIDIC Conditions of Contract?
(2) What is the procedure and the time limit for settlement of a preliminary complaint formulated in relation to an administrative public procurement contract, including the contracts based on FIDIC Conditions of Contract?
(3) What rules and statutes of limitation are applicable in case of the public procurement contracts based on FIDIC Conditions of Contract?
Art. 297 of E.G.O. no. 34/2006 has the following wording:
„Unless otherwise provided by the present ordinance, there are applicable the provisions of the general legal framework.”
This provision, apparently vague, has stimulated the appearance of several speculative interpretations:
(a) In one opinion it was considered that because E.G.O. no. 34/2006 is a special law, derogating from Law no. 554/2004, and because this special law does not explicitly provide that before the referral of a dispute resulting from the implementation of public procurement contracts, including the contracts based on FIDIC Conditions of Contract to a Court or an Arbitral Tribunal it would be necessary the fulfilment of any preliminary procedure, the silence of this special law would mean that the provisions regarding the preliminary complaint of Law no. 554/2004 would not be applicable in case of this type of disputes.
This interpretation which is evidently wrong was duly reprimanded by the case law.
For instance, by a decision of the Galati Court of Appeals[1], it was stated that:
„The fact that the special law does not contain provisions to this effect does not mean that in case of the public procurement contracts the preliminary procedure is not applicable, but that the provisions of the general legal framework in the matter, i.e. Law no. 554/2004, are applicable.”
(b) In an another opinion, it was considered that as Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract includes a contractual mechanism for settlement of disputes between the parties that must be followed before any referral to the Court or Arbitral Tribunal, as the case may be, this contractual mechanism established by the parties’ agreement would completely replace the compulsory preliminary administrative procedure provided by Law no. 554/2004, including as regards to the limitation periods laid down by it, and consequently the 3-year general term established by the „provisions of the general legal framework” on statute of limitation, i.e. the Civil Code, would become applicable.
This view is also erroneous for several reasons that we will subsequently set out later in the present analysis, but above all because the parties cannot change by their agreement the hierarchy of the applicable legal provisions or applicable „general legal framework”.
Obviously, the provisions of art. 297 of E.G.O. no. 34/2006 or those of Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract cannot be viewed in isolation.
The correct determination of the meaning of these norms cannot be done by ignoring the ensemble of all the other Romanian law provisions with which they are in an objective relationship. Both the provisions of the special law and the contract are components of the unitary hierarchy of legal norms and their systematic interpretation is always made within the wider context of this unitary hierarchy, and always in such a way as to be logically compatible with each other.
In this context it is noteworthy that, in order to avoid parties relying further upon speculative interpretations of the applicable legal and contractual provisions by taking into consideration only the most favorable such provisions and completely ignoring the least favourable ones, the Romanian legislator renounced to the wording used by art. 297 of E.G.O. 34/2006, the new provisions of Law no. 101/2016 being much clearer in terms of the relationship between the various applicable legal norms.
In this regard, art. 68 of Law no. 101/2016 reads:
„The provisions of this law shall be supplemented by the provisions of the Law on administrative contentious no. 554/2004, with the subsequent amendments and completions, of Law no. 134/2010[2], republished, as subsequently amended, and those of Law no. 287/2009[3], republished, as amended, insofar as the provisions of the latter are not contrary.”
Pursuant to art. 1.272 [Content of the contract] para. (1) of the Civil Code:
„The contract concluded validly obliges not only to what is expressly stipulated, but also to all the consequences that the established practices between the parties, customs, law or equity give to the contract, according to its nature.”
The Romanian scholars[4] emphasized that:
„In the conception of the new Civil Code, the determination of the content of the contract by reference to established practices between parties, custom, law or equity (according to paragraph 1) must be distinguished from the interpretation of the contract, which forms the object of regulation of a distinct section (Article 1.266- 1.269) […].
To summarize art. 1.272 NCC, the term „completing the content of the contract” is the most appropriate; if it is to refer to interpretation, it would be only adjacent to and only for the purpose of interpreting the law or custom referred to in art. 1.272 in order to supplement the content of the contract, but the main operation defining the analysed legal text is to supplement the content of the contract, not to interpret it.”
In view of the aforementioned legal provisions it becomes obvious that the parties will be first and foremost obliged to follow the contractual claims / dispute resolution procedure contained by Clause 20 [Claims, Disputes and Arbitration] of the public procurement contracts based on FIDIC Conditions of Contract.
To the extent that the provisions of Clause 20 are not sufficiently clear or complete, they will be duly completed by the relevant legal provisions of the “more general legal framework”, namely by those regarding the statutory limitation periods provided by Law no. 554/2004 for the disputes related to the administrative contracts (including the public procurement contracts), as well as by the rules provided by the Civil Code regarding the suspension and interruption of the applicable statutory limitation periods.
4. PRELIMINARY COMPLAINT vs. NOTICE OF CLAIM. SIGNIFICANCE
Pursuant to art. 2 [Significance of some terms] para. (1) letter j) of Law no. 554/2004, the preliminary complaint is defined as:
„the petition whereby it is requested to the issuing public authority or to that which is hierarchically superior, as the case may be, the re-examination of an administrative act of an individual or normative nature, in the sense of revoking or amending it.”
However, art. 7 para. (6) of the same Law no. 554/2004 states that in case of the administrative contracts the notion of „preliminary complaint” will have a different significance (“definition”) than that given by art. 2 para. (1) letter j) which refers exclusively to the individual or normative administrative act.
In this regard, art. 7 para. (6) of Law no. 554/2004 provides that:
„In respect of the court actions having as object administrative contracts the preliminary complaint has the significance of conciliation in the case of commercial litigation, the provisions of the Civil Code Procedure being applicable accordingly […].”
It is noteworthy that the provisions of art. 7 para. (6) of Law no. 554/2004 refers to a procedure, i.e. the “direct conciliation procedure”, previously regulated by art. 7201 of the former Romanian Civil Procedure Code (presently abrogated), but which no longer exists in the current one.
Under these circumstances question arises as to what terms and conditions should be observed in case of the preliminary administrative procedure provided by art. 7 para. (6) for administrative contracts, including the public procurement contracts, and whether this procedure is still mandatory having in mind the changes operated to this end in the actual Civil Procedure Code.
The matter was clarified during the meeting held by the representatives of the Superior Council of Magistracy with the presidents of the administrative and fiscal contentious divisions of the High Court of Cassation and Justice and Courts of Appeals in Suceava on October 23-24, 2014, the following conclusions being recorded in the minutes of meeting:
„The opinion unanimously agreed by the participants at the meeting was that, although the provisions of the previous CPC 7201, which apply „accordingly” to disputes concerning administrative contracts and which provided for the conciliation procedure, are no longer to be found in the new Civil Procedure Code, conciliation – as the way in which the preliminary administrative procedure is carried out – remains mandatory in the matter of administrative contracts, according to the provisions of art. 7 para. (1) of Law no. 554/2004.
As there is no detailed regulation on time limits, conditions of substance and form, the simple correspondence between the parties is capable of proving the fulfilment of the preliminary administrative procedure, the applicable time limits being those provided by art. 7 para. (6) letters a)-e) of Law no. 554/2004.”
But why is this distinction made by Law no. 554/2004 between the meaning of the preliminary complaint to be made in the case of the unilateral or normative administrative act and the one to be formulated in the case of the administrative contracts? The obvious answer is because the purposes pursued by the two types of prior complaints are different:
(a) In the case of unilateral and normative administrative acts by the preliminary complaint the person who considers itself aggrieved informs the public authority of the fact that it is affected by the issuance of an unlawful administrative act, requesting the total or partial revocation of such act; whilst
(b) In case of administrative contracts by the preliminary complaint the concerned person communicates to the contracting authority / the Employer the circumstances attributable to the latter which affect or hinder the normal performance of the contract, requesting the removal of those circumstances and/or remediation of the consequences triggered by such circumstances.
The law does not impose a certain form for the preliminary complaint, being considered by the Romanian scholars[5] that:
„The prior procedure is fulfilled if the applicant has requested a reconsideration of the act issued, has shown that it has suffered harm or has invoked the abusive conduct of the issuing authority with reference to the act at issue.”
Accordingly, in case of the administrative contracts, if by the preliminary complaint the applicant requested the removal of the circumstance attributable to the contracting authority / the Employer which prevented the normal performance of the contract, it shown that it had suffered damage as a result of that circumstance or invoked the abusive conduct by the contracting authority during the performance of the contract, it is sufficient to consider that the notification submitted by the applicant to the contracting authority / the Employer to this end has the significance of a preliminary complaint.
On a different note, pursuant to Sub-Clause 20.1 [Contractor’s Claims] of the public procurement contracts based on FIDIC Conditions of Contract:
„If the Contractor considers himself to be entitled to any extension of the Time for Completion and / or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim […].”
Regarding the form and content of the notice of claim, the FIDIC Contracts Guide[6] issued by the International Federation of Consulting Engineers – FIDIC brings further clarification:
„The notice must describe „the event or circumstance giving rise to the claim” for an extension of time or additional payment, to which „the Contractor considers himself to be entitled”. Generally, there is no need for this notice to indicate how much extension of time and / or payment may be claimed, or to state the Clause or other contractual basis of the claim.”
In other words, in order to be considered validly transmitted, it is sufficient for the notice of claim to contain a description of the events or circumstances that affect the normal execution of the contract and / or cause damage to the Contractor.
As it results from the above, it may be construed that the notice of claim required by Clause 20 is similar as purpose and content with the preliminary complaint required by art. 7 para (6) of Law no. 554/2004.
Therefore, to the extent that, during the execution of a public procurement contract based on FIDIC Conditions of Contract, a Contractor / petitioner submits to the contracting authority / the Employer a notice of claim describing the circumstance affecting the normal performance of the contract, there will be no need to also formally submit a „preliminary complaint”, the purpose of the latter being already achieved by the notice of claim.
5. LIMITATION PERIODS APPLICABLE TO THE PRELIMINARY COMPLAINT / NOTICE OF CLAIM. STARTING POINT OF THE LIMITATION PERIODS.
Pursuant to art. 7 para. (6) of Law no. 554/2004, in case of the administrative contracts the preliminary complaint may be submitted at any time within a maximum period of 6 months, which will start to run as follows:
„a) from the date of the contract conclusion, in case of the disputes related to its conclusion;
b) from the date of the contract amendment or, as the case may be, from the date of refusal of the request for amendment made by one of the parties, in case of the disputes related to the amendment of the contract;
c) from the date of breach of contractual obligations, in case of the disputes related to the performance of contract;
d) from the date of the expiry of contract duration or, as the case may be, from the occurrence of any other cause that triggers the termination of contractual obligations, in case of the disputes related to the contract termination;
e) from the date when it is ascertained the interpretable nature of a contractual clause, in case of the disputes related to the interpretation of the contract.”
Art. 7 para. (7) of Law no. 554/2004 qualifies the 6-month term as a statutory limitation period (in Romanian language „termen de prescripţie”). Failure to observe a statutory limitation period triggers the loss of the Contractor’s „right to action” in Court / Arbitral Tribunal against the Employer.
On the other hand, pursuant to Sub-Clause 20.1 [Contractor’s Claims] of the public procurement contracts based on FIDIC Conditions of Contract […]:
„The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.
If the Contractor fails to give notice of claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim […].”
In view of the sanction provided by Sub-Clause 20.1, namely the loss of the Contractor’s entitlement, the legal nature of the 28-day term is that of a “forfeiture period” (in Romanian language „termen de decădere”) established by conventional means.
Therefore, even though Law no. 554/2004 establishes a statutory limitation period of maximum 6 months for the initiation of the preliminary procedure for amicable settlement of the disputes between parties by submission of a preliminary complaint, by Sub-Clause 20.1 the parties agree that this preliminary procedure must be commenced much earlier, by submission of a notice of claim within no more than 28 days „after the Contractor became aware, or should have become aware, of the event or circumstance.”
The moment when the 28-days forfeiture period begins is controversial, in doctrine and jurisprudence being expressed the view that the obligation of sending a notice of claim would not arise as long as the Contractor, even if it became aware or should have become aware of the event or circumstances affecting the execution of the contract, it cannot determine yet whether or not it will incur damage due to the events/circumstances in question and consequently, whether it would be entitled to an extension of the Time for Completion and/or additional payments[7]. In this respect, it was argued[8] that the 28 day period would start to run:
„not before that the reasonable time necessary for the Contractor to determine whether it s entitled to a claim has passed. ”
However, this rationale cannot be applied in case of the public procurement contracts based on FIDIC Conditions of Contract.
In case of this type of public procurement contracts, in addition to the contractual provisions of Sub-Clause 20.1, the Contractor must also observe the provisions of art. 7 para. (6) of Law no. 554/2004, i.e. of the “more general legal framework” which further complete, clarify and detail the provisions of Sub-Clause 20.1.
Practically, art. 7 para. (6) of Law no. 554/2004 provides the list of objective moments when in the Romanian public procurement contracts, including the FIDIC Conditions of Contract based ones, it is considered that „the Contractor became aware, or should have become aware, of the event or circumstance”.
There can be no doubt that irrespective of its experience, any Contractor can understand (“become aware”) that it is or it will be harmed in its legitimate rights and interests arising from a public procurement contract based on FIDIC Conditions of Contract no later than:
(a) The date of the contract conclusion;
(b) The date of the contract amendment or the date of refusal of the request for such amendment;
(c) The date of the breach of the contractual obligations;
(d) The date of the occurrence of any cause that triggers the termination of the contractual obligations, or
(e) The date when it is ascertained the interpretable nature of a contractual clause;
as the case may be, and that it must submit a notice of claim / preliminary complaint in this regard to the contracting authority / the Employer.
Consequently the 28-days period for submission of a notice of claim will start to run at the moments provided by art. 7 para. (6) of Law no. 554/2004.
6.DURATION OF THE PRELIMINARY PROCEDURE – THE RELATIONSHIP BETWEEN THE MAXIMUM PERIOD ALLOWED BY ARTICLE 2.532 (7.) OF THE CIVIL CODE FOR SUSPENSION OF THE APPLICABLE LIMITATION PERIOD AND THE STAGES AND DEADLINES OF THE CONTRACTUAL MECHANISM PROVIDED BY CLAUSE 20 OF THE PUBLIC PROCUREMENT CONTRACTS BASED ON FIDIC CONDITIONS OF CONTRACT
Submission of a “notice of claim” (“preliminary complaint”) initiates the “preliminary procedure” (”direct conciliation procedure”) which is intended to provide the parties the opportunity to settle their contractual disagreements in an amicable manner rather than by lengthy and expensive proceedings before Court / Arbitral Tribunal.
From the date of submission of such notice the limitation period of the Contractor’s right to bring its contractual claims against the contracting authority / the Employer into the Court or arbitration is suspended, and the period in which the contracting authority / the Employer must respond to the Contractor’s notice of claim (preliminary complaint) begins to run.
Regarding the deadline for the Employer’s reply, it has been suggested into the doctrine and jurisprudence that the 30-days period provided by Law no. 554/2004 for the replies to the preliminary complaints requesting the revocation of unilateral or normative administrative acts would also be applicable to the preliminary complaints related to the performance of administrative contracts.
In our view, this approach is wrong for several reasons.
(a) First of all, it should be noted that the 30-day deadline applies only to the individual administrative act. In this respect, art. 7 para. (4) of Law no. 554/2004, located in the said law immediately after the paragraphs dedicated to the individual and normative administrative acts only, refers explicitly to the provisions of para. (1) of the same article which is applicable exclusively to the individual administrative acts.
(b) Secondly, the legal provision setting out the 30-days reply period, namely art. 2 para. (1) letter h) of Law no. 554/2004 reads:
„Failure to settle a request in the legal timeframe – not responding to the applicant within 30 days from the filing of the application, unless otherwise stipulated by law.”
However, as mentioned before within the present analysis, pursuant to art. 7 para. (6) of Law no. 554/2004 the preliminary complaint has a different meaning / significance in case of the administrative contracts than that given by the same law to the individual and normative administrative acts by art. 2 para (1) letter j).
Thus, the preliminary complaint related to the administrative contracts is not simply a request to which the contracting authority / the Employer must answer, but it sends to a “conciliation procedure” whereby the parties should try to settle their contractual disagreements and disputes in an amicable manner.
Absent a detailed regulation on time limits, conditions of substance and form for the preliminary „conciliation procedure” required by art. 7 para (6) of Law no. 554/2004, in case of the public procurement contracts based on FIDIC Conditions of Contract such “conciliation procedure” must observe the stages and deadlines set out within Sub-Clause 20.1.
However, by far the most controversial issue in the field of public procurement contracts based on FIDIC Conditions of Contract is how and to which extent the contractual mechanism provided by Clause 20 influences the course of the applicable limitation period. It is of particular interest which is the moment when the suspension of the limitation period for fulfilment of the preliminary “conciliation procedure” comes to an end and the limitation period for bringing the contractual disputes in Court or arbitration begins to run.
These matters were addressed for the first time in an article published in 2011 by the reputable Romanian professor Mr. Marian Nicolae[9].
Even though the study we refer to was published at a time when the public procurement contracts based on FIDIC Conditions of Contract were not, according to the law, administrative contracts, but commercial contracts, so that in his analysis the author did not consider also the specific effects that the provisions of Law no. 554/2004 has on limitation, the conclusions of the study regarding the legal nature of preliminary contractual procedures and the way in which they influence the course of limitation should not be ignored.
Thus, pursuant to the concluding remarks of Mr. Nicolae’s study[10] […]:
„in the absence of an agreement on limitation, the provisions of NCC[11] shall apply for the commencement, suspension and interruption of the limitation period, in the light of which it may be opined that, in principle, if the Engineer is not given notice and, therefore, in the absence of a dispute, limitation does not commence (art. 2.523), and if it is accepted that the DAB procedure is a requirement to exercise arbitral (judiciary) action, than the commencement of limitation depends on this procedure being conducted (art. 2.524 paragraph 3). Finally, in the absence of these legal qualifications, the DAB procedures should trigger the suspension of the limitation period, according to article 2.532 point 7 of NCC.
In addition, the existence of a precedent mandatory procedure to amicably settle the litigation is a cause to suspend the limitation period (article 2.532 point 7).
Finally, since in our opinion, the DAB procedure, if it cannot be considered a prerequisite to exercising the arbitral (or judiciary) action, it has all the attributes of a genuine judiciary procedure[12], such procedure should have more powerful effects upon the course of limitation causing even the interruption of the limitation period (article 2.537 point 2).”
In light of these remarks the contractual mechanism provided by Clause 20 for the settlement of claims and disputes between the parties to a public procurement contract based on FIDIC Conditions of Contract may be viewed from several legal angles, as follows:
(1) The contractual mechanism provided by Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract represents a conventional amendment of the causes provided by the Civil Code for suspension of limitation, derogating from the legal regime of limitation. In this case, the course of limitation would not start and if started would be suspended until the conclusion of the entire preliminary contractual procedure
Art. 2.532 [General cases for suspension of the limitation] of the Civil Code reads:
„The limitation shall not start and, if started, it is suspended […]:
7. if the person entitled to act must or may, under the law or the contract, use a particular preliminary procedure, such as administrative complaint, attempt of conciliation and the like, for as long as he was not aware or should not have become aware of the result of that procedure, but no more than 3 months from initiation of the procedure, unless another period has been provided under the law or contract […].”
The rationale behind this interpretation is that, by agreeing to a complex preliminary contractual procedure comprising several stages with separate deadlines provided for each of them, the parties would have conventionally established „another period” for the settlement of their contractual disagreements / disputes than that provided by art. 2.532 of the Civil Code, thus implicitly extending the length of the limitation period suspension.
Apparently, having in mind the declared purpose of the preliminary contractual procedure established by Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract, i.e. to avoid the lengthy and costly court or arbitral proceedings, this seems to be the most logical and rational approach.
Indeed, given the complexity of the works subject to the public procurement contracts based on FIDIC Conditions of Contract, as well as the high level of financial implications that may be triggered in the event that the contractual disputes between the parties are referred to the Court or Arbitral Tribunal, the complexity of the preliminary procedure set out by Clause 20 is not exaggerated at all. Obviously, the parties need an adequate amount of time and effective contractual mechanisms to assess in an accurate and complete manner the situations that occurred during the performance of the contract affecting its normal course and to find appropriate solutions to prevent or put to an end the disputes that may arise in connection with these situations.
Thus, the Contractor notifies its claims to the Engineer which, in accordance with the provisions of Sub-Clause 3.5 of the public procurement contracts based on FIDIC Conditions of Contract, has an obligation to issue a „determination” regarding such claims. If the Engineer does not respond or reject in part or in entirety the Contractor’s claims, a dispute is brought to a third party – the Dispute Adjudication Board (DAB). The latter issues an impartial and fair decision that is binding on both sides. If one of the parties is dissatisfied with the decision of the Dispute Adjudication Board (DAB), it will send a notice of dissatisfaction to the other party to this effect. Upon receipt of such a notice of dissatisfaction, the parties have a 56-day period to try to settle the dispute amicably, also taking into account the decision issued by the Dispute Adjudication Board (DAB). If the parties fail to reach a compromise solution, after the expiry of the 56-days set for this purpose by Sub-Clause 20.5 of the public procurement contracts based on FIDIC Conditions of Contract, the parties may initiate the court or arbitral proceedings, as the case may be.
In light of these considerations, the preliminary contractual procedure provided by Clause 20 appears to be a complex suspensive condition, in fact a series of many intermediate suspensive conditions (the issuance of a „determination” by the Engineer, the issuance of a decision by the Dispute Adjudication Boards (DAB), expiry of the 56-day period without the dispute between the parties being settled amicably) which suspend the limitation between the moment of submission of the notice of claim and the expiration of the 56-day period provided by the Sub-Clause 20.5, the latter being the moment when the limitation period for referral of the disputes to the court or arbitral tribunal begins to run.
Although by reference to the purpose pursued by the preliminary contractual procedure the aforementioned argumentation appears to be the most logical and commercially fair for the parties, there are several well founded arguments undermining the rationale behind this interpretation:
(a) Firstly, pursuant to art. 2.515 [Rules applicable to limitation] para. (3) of the Civil Code […]:
„within the limits and conditions provided by the law, the parties which have the full legal capacity may, by express agreement, modify the duration of the limitation periods or change the course of the limitation period by setting its start or by changing the legal causes of its suspension or interruption, as the case may be.”
In this regard, in the Romanian legal literature[13] it has been pointed out that […]:
„For the existence of an agreement or of conventional clauses governing the legal regime of the limitation, it is necessary to have an express agreement of the contracting parties. Of course, it should not be used formal terms, but the ones used must be unambiguous in order to clearly state that the parties have understood to deviate from the legal regime of limitation.”
The provisions of Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract do not contain such an “express and unequivocal”, “clearly stated” agreement between the parties to modify the duration of the limitation period or the legal causes for its suspension.
(b) Secondly, the phrase „unless another period has been provided under the law or contract” comprised by art. 2.532 (7.) of the Civil Code refers to the establishment by the parties’ agreement of a precise duration for fulfilment of the entire preliminary contractual procedure, the starting moment of the limitation period provided by law for referral of the disputes to the Court or Arbitral Tribunal being delayed until such procedure comes to an end.
Absent a precise duration established by parties’ agreement in an “express and unequivocal” manner for the preliminary contractual procedure as a whole triggers the application of the rule and deadlines provided by art. 2.532 (7.) of the Civil Code, i.e. essentially that the applicable limitation period will start after no more than 3-months from the initiation of the preliminary procedure, even though the parties would continue to try to settle amicably the contractual disagreements / disputes between them after the expiry of this deadline.
In view of these preliminary remarks it should be noted that Clause 20 and Sub-Clause 3.5 of the public procurement contracts based on FIDIC Conditions of Contract contains several time limits for some of the stages which must be followed by the Contractor under the preliminary contractual procedure, but it does not provide a precise duration for the entire procedure as a whole.
For instance, there are no contractual time limits set for the issuance of a “determination” under Sub-Clause 3.5 by the Engineer or for the submission of a dispute to the Dispute Adjudication Board (DAB) under Sub-Clause 20.4 by the Contractor.
Under these circumstances in case of the public procurement contracts based on FIDIC Conditions of Contract the limitation period for referral of the disputes to the Court or Arbitral Tribunal shall not start and, if started, it shall be suspended for as long as the Contractor is not aware or should not have become aware of the result of the preliminary contractual procedure, but no more than 3 months from initiation of the procedure by submission of the notice of claim by the Contractor (pursuant to the provisions of art. 2.532 (7.) of the Civil Code).
This solution of Civil Code is logical since the lack of a maximum duration established by the Contract for the preliminary procedures provided by Clause 20 and 3.5 would otherwise allow to the Engineer and Contractor to extend the duration of these procedures as much as they want, thus deferring in an unilateral and discretionary manner the moment when the 6-month limitation period set by the provisions of Art. 11 para. (1) of Law no. 554/2004 begins to run.
(2) The procedure before the Dispute Adjudication Board (DAB) is that of a judiciary nature, leading to the interruption of the limitation throughout its duration. A new limitation begins to run after completion of the Dispute Adjudication Board (DAB) procedure
The Romanian scholars[14] explored also the possibility to consider the proceedings with the Dispute Adjudication Board (DAB) as being of a judiciary nature.
In this regard it was argued that being an independent, impartial body which may be invested by the parties to resolve their disputes within a procedure of a contentious nature (i.e. by observing the parties’ right to defence and the adversarial principle) by issuing of binding decisions which must be executed by both parties without delay (even if such decisions are subsequently susceptible to be reviewed by amicable settlement of the parties or by a court or arbitration award), it may be construed that, similar to the court and arbitral tribunals, the Dispute Adjudication Boards (DAB) would be a “judiciary body” (in Romanian language “organ jurisdicţional”).
For these reasons, it was concluded that […]:
„In any event, we believe that in the FIDIC contracts (1999) of international commerce governed by the Romanian law the DAB would be considered as being a genuine judiciary body, having a private character as same as the arbitral tribunal, so that the request whereby any of the parties demands it to issue a decision whereby to resolve a dispute arisen between them constitutes a genuine statement of case[15] for the purposes of art. 2.537 point 2 NCC, interrupting the course of limitation of the right to action.”
According to the provisions of art. 2.541 of the Civil Code, the consequence triggered by such interpretation would be that the referral of a dispute to the Dispute Adjudication Board (DAB) would delete the limitation that had begun before the dispute was brought before this body, and a brand new limitation would start to run at the date of issuance of the Dispute Adjudication Board’s decision.
However, it should be noted that the referral of a dispute to the Dispute Adjudication Board (DAB) is not among the cases of interruption of limitation listed limitatively within art. 2.537 [Cases of interruption of limitation] of the Civil Code[16], so that to rely on such interpretation it requires to have an explicit clause included in the public procurement contracts based on FIDIC Conditions of Contract whereby by virtue of art. 2.515 [Rules applicable to limitation] para. (3) of the Civil Code the parties agreed in an “express and unequivocal” manner to modify the legal grounds for interruption of limitation by conventionally including the procedure of the Dispute Adjudication Board (DAB) among such causes.
Absent such an express and unequivocal agreement of the parties, the provisions of art. 2.537 of the Civil Code are and remain of strict interpretation, being no legal argument that would allow the extension by analogy of these provisions to other situations not expressly provided in the text of the said article.
(3) The contractual mechanism provided by Clause 20 of the public procurement contracts based on FIDIC Conditions of Contract does not derogate from the legal regime of limitation that remains fully applicable. Limitation begins to run at the moment when the Contractor becomes or ought to become aware about the outcome of the procedure, but no later than 3 months from the commencement of the procedure
Even if this scenario is the most unfavorable one for the Contractor, it is also the safest in terms of avoiding the loss of its right of action against the Employer.
Under these circumstances, the limitation will start to run when the Contractor „has known” the outcome of the procedure and, if it did not become aware of such outcome, at the end of the 3-month period provided by art. 2.532 para. (7) of the Civil Code, calculated from the date of initiation of the preliminary procedure by submission of the notice of claim.
It should also be noted that according to the mechanism established by Sub-Clause 20.1 […]:
„Within 42 days after receiving a claim or any further particulars supporting a previous claim, or within such other period as may be proposed by the Engineer and approved by the Contractor, the Engineer shall respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim within such time […].”
In other words, if the Engineer fails to respond, it rejects or only partially approves the Contractor’s claim within 42 days of receipt (i.e. within 56 days / approximately 2 months after receipt of the notice of claim), it can be argued that the Contractor will „know the outcome of the procedure” even before the issuance of a „determination” under Sub-Clause 3.5 by the Engineer, this being the moment when, according to the provisions of art. 2.532 para. (7) of the Civil Code the limitation period provided by law for referral of the disputes to the court or arbitral tribunal starts to run.
However, if the Engineer approves the Contractor’s claim, i.e. it fully recognizes the Contractor’s claims, the effect produced will be the „delay” of the beginning of limitation until the issuance of a „determination” by the Engineer (yet the maximum period of 3-month provided by art. 2.532 para. (7) of the Civil Code remaining fully applicable).
The consequence of this circumstance is that in order to be sure that there is no danger of losing its right to action against the Employer, the Contractor will have to comply with the 6-month limitation period provided for within art. 11 para. (1) of Law no. 554/2004 to follow and complete the entire dispute settlement procedure before the Dispute Adjudication Board (DAB), and also to prepare and submit the statement of case / request for arbitration to the competent Court or Arbitral Tribunal, as the case may be.
7. THE LIMITATION PERIOD FOR REFERRAL OF DISPUTES TO THE COURT OR ARBITRAL TRIBUNAL – 6 MONTHS OR 3 YEARS? WHY THE ARBITRATION CLAUSE PROVIDED BY CLAUSE 20 OF THE PUBLIC PROCUREMENT CONTRACTS BASED ON FIDIC CONDITIONS OF CONTRACT DOES NOT IMPLICITLY EXCLUDE THE APPLICABLE LIMITATION PERIOD OF 6 MONTHS PROVIDED BY LAW NO. 554/2004
Pursuant to art. 2.517 [General term of 3 years] of the Civil Code:
„The limitation term is of 3 years, unless the law provides another term”.
However, Law no. 554/2004 provides “another term”. In this regard, the provisions of art. 11 para. (1) reads:
„Applications for the annulment of […] an administrative contract, the recognition of the claimed right and reparation of the damage caused may be brought within 6 months […].”
As far as the limitation period applicable to the disputes related to the public procurement contracts based on the FIDIC Conditions of Contract are concerned, it was argued by several Romanian practitioners that the 6-month limitation period established by art. 11 para. (1) of Law no. 554/2004 would be exclusively applicable to the disputes to be referred to the Romanian Courts, whilst in case of the disputes to be referred to the Arbitral Tribunals the general limitation term of 3 years provided by art. 2.517 of the Civil Code would apply.
In this respect it was argued that an arbitration clause, such as Sub-Clause 20.6 of the public procurement contracts based on FIDIC Conditions of Contract, would exclude not only the jurisdiction of the Romanian administrative Courts but also, implicitly, the application of the preliminary procedure and the limitation terms provided by Law no. 554/2004.
This interpretation is purely speculative, being plain wrong as it ignores basic principles of the Romanian law:
(1) First of all, under the Romanian law, limitation is a matter related to the nature of right, and not one related to the applicable procedural norms[17]. Therefore, the applicable limitation period is determined by the merits, by the substance of the legal relationship that generates the dispute, and not by the type of court which would have jurisdiction to resolve the said dispute, or by the procedural rules agreed by the parties to be applicable to the settlement of the disputes between them.
Given that the public procurement contracts based on FIDIC Conditions of Contract are expressly qualified by the Romanian law as being administrative contracts, the applicable limitation is that of 6-month provided by art. 11 para. (1) of Law no. 554/2004 for all the disputes resulted from this type of contract, regardless of whether they are referred for settlement to the Romanian administrative Courts or to the international or domestic Arbitration Tribunals.
(2) Secondly, as it was explained earlier within this white paper, according to the rules established by art. 2.515 para. (3) of the Civil Code any derogation by parties’ agreement from the legal regime of limitation, including the amendment of the applicable limitation periods, must be expressed in an express and unequivocally manner.
Such derogation cannot be presumed, deducted, or construed under the Romanian law.
In the same manner, any derogation agreed by parties cannot be implicitly extended by analogy to other situations not expressly provided by their agreement.
Therefore, absent such express and unequivocally provisions introduced by the parties to this effect in the public procurement contracts based on FIDIC Conditions of Contract, there are no legal or contractual arguments which would lead to the conclusion that insertion of an arbitral clause into such contracts would implicitly and automatically exclude the applicability of legal provisions to which that arbitral clause makes no reference whatsoever.
In view of the aforementioned, it should be noted that, similar to any other arbitral clause, the one provided by Sub-Clause 20.6 [Arbitration] of the public procurement contracts based on FIDIC Conditions of Contract establishes only:
(a) That the parties will settle any dispute between them resulted from the contract by arbitration;
(b) That the disputes will be settled according to the Rules of Arbitration of the International Chamber of Commerce;
(c) That the disputes will be settled by one or three arbitrators, as the case may be, appointed in accordance with the provisions of the said Rules; and
(d) That the arbitration will be conducted in the language of communication defined within Sub-Clause 1.4 [Law and Language], which is usually the Romanian language;
without making any reference to the modification of the legal regime of limitation or to the removal of the general rules regarding the preliminary procedure provided by Law no. 554/2004.
It is no doubt that the situations met in practice are extremely different and varied due to the amendments bring to the public procurement contracts based on FIDIC Conditions of Contract by various contractual documents like the Particular Conditions of Contract, the Appendix to Tender and / or the Negotiation and Clarification Memorandum, and that each situation should be properly dealt with according to the specific contractual conditions applicable to each case.
There is also no doubt that more attention should be paid to the form and provisions of the public procurement contracts based on FIDIC Conditions of Contract that are included in the tender documentation in order to try to clarify as soon as possible the controversial issues outlined above even from the very early stage of the tender procedure or, at least, at the moment when the public procurement contract is ready to be signed.
Where this is not possible, particular attention should be paid to the interpretation of the contractual clauses and applicable legal provisions in an as accurate as possible manner, and to the strict compliance with the preliminary amicable settlement procedures provided for by the contract and the law, and of the deadlines and limitation periods set out for them.
It should not be forgotten that, irrespective of whether the disputes appeared in connection with the performance of the public procurement contracts based on FIDIC Conditions of Contract are submitted to the Romanian courts of administrative contentious or to the international arbitration courts, both will be required to analyze and resolve the disputes of the parties using the interpretation of the contractual clauses and applicable legal provisions of Romanian law as presented in this white paper.
In this context, the use of any speculative, „innovative” or fanciful interpretation of the contractual clauses in general and Clause 20 in particular, ignoring basic principles of Romanian law, even if it is tempting and may look apparently beneficial for the Contractors, puts the Contractors in real danger to lose their entitlement to pursue their legitimate rights and interests arising from such public procurement contracts based on the FIDIC Conditions of Contract, the risk assumed in this respect being more than significant.
[1] Galaţi Court of Appeals Decision no. 475 dated 24 March 2016.
[2] Law no. 134/2010 regarding the Civil Procedure Code.
[3] Law no. 287/2009 regarding the Civil Code.
[4] F.A. Baias, E. Chelaru, R. Constantinovici, I. Macovei, “The new Civil Code – Articles commented”, 1st Edition, C.H. Beck Publishing, Bucharest, 2012, p. 1029.
[5] G. Bogasiu, “The law of the administrative contentious commented and annotated”, 3rd Edition, Universul Juridic Publishing, Bucharest, 2015, p. 245.
[6] “FIDIC Contracts Guide”, p. 299.
[7] For an overview of the opinions expressed in this respect please refer to B. Oglindă, „Jurisprudential challenges raised by the deadlines provided by Sub-Clause 20.1 of the FIDIC General Conditions of Contract”, JURIDICE.ro, 2015.
[8] A.V. Jaeger, G.S. Hök, “FIDIC – A Guide for Practitioners”, Springer Publishing, Berlin, 2010, p. 374.
[9] M. Nicolae, “Limitation and FIDIC (1999) procedures for disputes settlement in the Romanian private law”, The Romanian Private Law Review no. 5/2011.
[10] M. Nicolae, “Limitation and FIDIC (1999) procedures for disputes settlement in the Romanian private law”, The Romanian Private Law Review no. 5/2011, p. 151.
[11] “NCC” – the New Civil Code.
[12] “Judiciary procedure” – in Romanian language “procedură jurisdicţională”.
[13] F.A. Baias, E. Chelaru, R. Constantinovici, I. Macovei, “The new Civil Code – Articles commented”, 1st Edition, C.H. Beck Publishing, Bucharest, 2012, p. 1952.
[14] M. Nicolae, “Limitation and FIDIC (1999) procedures for disputes settlement in the Romanian private law”, The Romanian Private Law Review no. 5/2011, p. 138.
[15] “Statement of case” – in Romanian language „cerere de chemare în judecată”.
[16] In this respect, art. 2.537 (2) of the Civil Code establishes unequivocally that:
„Limitation is interrupted […]:
2. by referral of a statement of case or request for arbitration, by registration of the claim against the creditor’s patrimony in the insolvency proceedings, by filing the intervention request in the course of enforcement initiated by other creditors or by invoking, by way of exception, the right whose action is time-barred […].”
[17] F.A. Baias, E. Chelaru, R. Constantinovici, I. Macovei, “The new Civil Code – Articles commented”, 1st Edition, C.H. Beck Publishing, Bucharest, 2012, p. 2030.
Advocate Răzvan Cristian Rugină
Aflaţi mai mult despre Codul civil, Condițiile Generale ale Contractelor FIDIC, contracte, procedura preliminara, Răzvan Cristian Rugina