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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
The updated second edition of the practical guide to international construction contract law The revised second edition of International Construction Contract Law is a comprehensive book that offers an understanding of the legal and managerial aspects of large international construction projects. This practical resource presents an introduction to the global construction industry, reviews the basics of construction projects and examines the common risks inherent in construction projects. The author -- an expert in international construction contracts -- puts the focus on FIDIC standard forms and describes their use within various legal systems. This important text contains also a comparison of other common standard forms such as NEC, AIA and VOB, and explains how they are used in a global context. The revised edition of International Construction Contract Law offers additional vignettes on current subjects written by international panel of numerous contributors. Designed to be an accessible resource, the book includes a basic dictionary of construction contract terminology, many sample letters for Claim Management and a wealth of examples and case studies that offer helpful aids for construction practitioners. The second edition of the text includes: * Updated material in terms of new FIDIC and NEC Forms published in 2017 * Many additional vignettes that clearly exemplify the concepts presented within the text * Information that is appropriate for a global market, rather than oriented to any particular legal system * The essential tools that were highlighted the first edition such as sample letters, dictionary and more * A practical approach to the principles of International Construction Contract Law and construction contract management. Does not get bogged down with detailed legal jargon Written for consulting engineers, lawyers, clients, developers, contractors and construction managers worldwide, the second edition of International Construction Contract Law offers an essential guide to the legal and managerial aspects of large international construction projects.
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Veröffentlichungsjahr: 2018
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Table of Contents
Cover
About the Author
Foreword
Acknowledgments
Introductory Remarks
Chapter 1: International Construction Projects
1.1 The unique nature of the construction industry
1.2 Individuality of construction projects
1.3 Roles and relationships
1.4 Contract administration
1.5 Further important aspects of construction projects
1.6 Typical contractual relationships
1.7 Motivation for international business
1.8 Managerial analysis
1.9 Hazards and risks
1.10 Hazard identification
1.11 Risk analysis
1.12 Anti‐risk measures
1.13 Typical hazards in the international construction business
1.14 Risk allocation in contracts
1.15 Form of Business Organization
References
Chapter 2: Civil Law and Common Law
2.1 Specifics of the governing law
2.2 Common law versus civil law: Differences and interconnections
2.3 Delay damages (liquidated damages) versus contractual penalty
2.4 Substantial completion versus performance
2.5 Binding nature of adjudication awards
2.6 Limitation of liability
2.7 Lapse of claim due to its late notification (time bars)
2.8 Allocation of unforeseeable and uncontrollable risk to the contractor
2.9 Contract administration (the Engineer's neutrality and duty to certify)
2.10 Termination in convenience
2.11 Time‐related issues
2.12 Quantification of claims
2.13 Statutory defects liability
2.14 Performance responsibility: Reasonable skill and care versus fitness for purpose
2.15 Common law, civil law, and Sharia interconnections
References
Further reading
Websites
Chapter 3: Common Delivery Methods
3.1 Common delivery methods: Main features
3.2 General contracting
3.3 Design‐build
3.4 Construction management
3.5 Multiple‐prime contracts
3.6 Partnering
3.7 Alliancing
3.8 Extended delivery methods (PPP, BOT, DBO)
3.9 Further aspects of delivery methods
References
Further reading
Chapter 4: Specifics of EPC and EPCM
4.1 EPC and EPCM
4.2 Engineer procure construct (EPC)
4.3 Bespoke EPC contracts
4.4 Turnkey EPC contracts
4.5 Front end engineering design
4.6 Engineer procure construction management (EPCM)
4.7 EPC versus EPCM
Bibliography
References
Further reading
Chapter 5: Unification and Standardization in International Construction
5.1 Unification of contracts
5.2 Unification per law, principles, and sample documents
5.3 Lenders and their influence on unification
5.4 Standard form of contract in a governing law context
5.5 Purpose of sample documents in construction projects
5.6 Standard sample forms as a source of law
5.7 Lex causae
5.8 Interpretation
5.9 Trade usage and business custom
5.10
Lex constructionis
principles
5.11 The use of
lex constructionis
References
Further reading
Websites
Chapter 6: Price
6.1 Contract price
6.2 Bid pricing methods
6.3 Methods of contract price determination
6.4 Re‐measurement
6.5 The lump sum
6.6 Cost plus
6.7 Guaranteed maximum price
6.8 Target price
6.9 Payment
6.10 Contract price under FIDIC forms
6.11 Cost overruns
6.12 Abnormally low tender (ALT)
6.13 Claims as part of contract price
6.14 Public procurement law limitations
References
Further reading
Websites
Chapter 7: Time
7.1 Time in construction
7.2 Delay
7.3 The United Kingdom Society of construction law delay and disruption protocol
7.4 Time program
7.5 Ownership of floats
7.6 Time at large and extension of time (EOT)
7.7 Concurrent delay
7.8 Disruption
7.9 Time for completion under FIDIC forms
7.10 Time program under FIDIC forms
7.11 Delay and suspension under FIDIC forms
7.12 Contract termination under FIDIC forms
References
Further reading
Chapter 8: Variations
8.1 Variation clauses
8.2 Variations under FIDIC forms
8.3 Claims related to variations
8.4 Acceleration
8.5 Proving the acceleration claim
8.6 Substantial change
References
Further reading
Websites
Chapter 9: Claims
9.1 Claims
9.2 Contractor's claims under FIDIC forms
9.3 Employer's claims under FIDIC forms
9.4 Lapse of claim
9.5 Cause of the claim
9.6 Limits of the lapse of claim
References
Further readings
Chapter 10: Claim Management
10.1 Claim management
10.2 Claims for extension of time (EOT)
10.3 Claims for additional payment
10.4 Claims resulting from delay and/or disruption under the provisions of the contract
10.5 Claims resulting from governing law
10.6 Global claims
10.7 Contractor's claim management under FIDIC forms
10.8 Employer's claim management under FIDIC forms
10.9 Intercultural aspects
10.10 Claim management implementation
References
Further reading
Chapter 11: Construction Dispute Boards
11.1 Construction disputes
11.2 Dispute boards
11.3 Contractual adjudication: The use of DAB in FIDIC forms
11.4 Enforcement of dispute board decisions
11.5 Statutory adjudication
References
Further reading
Chapter 12: FIDIC
12.1 FIDIC expansion
12.2 FIDIC
12.3 FIDIC's influence on the construction industry
12.4 FIDIC membership
12.5 Networking activities
12.6 FIDIC forms of contract
12.7 The structure of the contract under FIDIC forms
12.8 Conditions of contract for construction (CONS)—1999 Red Book
12.9 Conditions of contract for plant and design‐build (P&DB)—1999 Yellow Book
12.10 Conditions of contract for EPC/Turnkey projects (EPC)—1999 Silver Book
12.11 Short form of contract—Green Book
12.12 Construction subcontract
12.13 Conditions of contract for design, build, and operate (DBO)—Gold Book
12.14 Other FIDIC standard forms
12.15 Risk allocation under FIDIC forms
12.16 Design responsibility under FIDIC forms
References
Further reading
Chapter 13: Other Standard Forms of Construction Contracts: NEC, ICC, ENNA, IChemE, Orgalime, AIA, VOB
13.1 Common standard forms of construction contracts
13.2 The NEC (New Engineering Contract)
13.3 FIDIC forms versus NEC3
13.4 ICC forms of contract
13.5 ENAA forms of contract
13.6 IChemE forms of contract
13.7 Orgalime forms of contract
13.8 Standard forms of construction contracts in the Czech Republic
13.9 VOB: German standard
13.10 Invalid clauses in German case law
References
Further reading
Websites
Chapter 14: Risk and Insurance
14.1 Insurance in construction
14.2 Commercial risk, risk of damage, and exceptional risk
14.3 Risk management in the standard forms of contract
14.4 Hazards and risks in construction projects
14.5 Insurance requirements in standard forms of contract
14.6 Practical aspects of insurance in construction projects
14.7 International insurance law and insurance standards in the construction industry
References
Further reading
Website
Chapter 15: Risk in Underground Construction
15.1 Underground construction hazards and risks
15.2 Code of practice for risk management of tunnel works
15.3 Alternatives of unforeseeable physical conditions risk allocation
15.4 Unforeseeability
15.5 “Unforeseeability” according to FIDIC forms
15.6 Site data
15.7 Sufficiency of the accepted contract amount
15.8 Unforeseeable physical conditions
15.9 Unforeseeable operation of the forces of nature
15.10 Force majeure
15.11 Release from performance under law
References
Chapter 16: Securities
16.1 Securities in construction
16.2 Bank guarantees
16.3 Functions and parameters of bank guarantees
16.4 Specifics of retention guarantee
16.5 Governing law
16.6 ICC rules related to securities
16.7 Suretyship
16.8 Stand‐by letter of credit
16.9 Securities under FIDIC forms
Further reading
Chapter 17: Civil Engineering Works: Infrastructure Construction Projects
17.1 Investments in developing countries
17.2 The approach to the risk allocation in the United States
17.3 The approach to the risk allocation in the United Kingdom
17.4 The approach to the risk allocation in Central and Eastern Europe
17.5 The Polish experience
17.6 The Czech experience
References
Further reading
Websites
Chapter 18: Building Construction: Health Care Facilities
18.1 Health care facility construction project
18.2 Pre‐design planning phase
18.3 Design phase
18.4 Basic structure of a hospital
18.5 Efficiency and cost effectiveness
18.6 Flexibility and expandability
18.7 Therapeutic environment
18.8 Cleaning and maintenance
18.9 Controlled circulation and accessibility
18.10 Aesthetics
18.11 Health and safety
18.12 Use of information technology
18.13 Relevant regulations and standards
18.14 Health care facility construction project: Suitable delivery method
Further reading
Appendix A: Interactive Exercises
A.1 Interactive exercise 1: Delivery method selection
A.2 Interactive exercise 2: Claim for delayed site handover
A.3 Interactive exercise 3: Claim due to suspension of work
A.4 Interactive exercise 4: Subcontractor claim for contractor delay (lack of cooperation, inadequate on‐site coordination and improper, unclear, and delayed instructions)
Appendix B: Sample Letters (Examples of Formal Notices)
B.1 Contractor's sample letters: Notice of probable future event
B.2 Contractor's sample letters: Notice of contractor's claims
B.3 Contractor's sample letters: Contractor's claim No._______ submission (quantification)
B.4 Contractor's sample letters: Request for evidences of financial arrangements
B.5 Contractor's sample letters: Written confirmation of oral instruction
B.6 Contractor's sample letters: Notice of dissatisfaction with a determination of the engineer
B.7 Contractor's sample letters: Notice of contractor's entitlement to suspend work
B.8 Contractor's sample letters: Notice of contractor's claim under the sub‐clause 16.1
B.9 Contractor's sample letters: Application for taking over certificate
B.10 Employer's sample letters: Notice of employer's claim
B.11 Employer's sample letters: Answer to request for evidence of financial arrangements
B.12 Engineer's sample letters: Engineer's determination
B.13 Engineer's sample letters: Engineer's instruction
B.14 Engineer's sample letters: Engineer's notice to correct
B.15 Engineer's sample letters: Engineer's instruction to remove a person employed on the site
B.16 Engineer's sample letters: Engineer's instruction—lack of mobilization
Appendix C: Dictionary of Construction Terms: English, German, French, Hungarian, Czech, Russian, Polish, Spanish, Portuguese and Chinese
C.1 Dictionary—General part
C.2 Dictionary—Contractor's claims
C.3 Dictionary—Employer's claims
Appendix D: Claim Management System Under FIDIC Forms
D.1 Claim management team responsibilities
D.2 Claim management processes
D.3 Table of contractor's claims under FIDIC CONS
D.4 Table of employer's claims under FIDIC CONS
Appendix E: FIDIC Forms Risk Allocation Charts
E.1 Chart No.1: Basic risk allocation alternatives in connection with unforeseeable physical conditions
E.2 Chart No. 2: Basic comparison of risk allocation (claims options) in FIDIC CONS/1999 red book, P&DB/1999 yellow book, and EPC/1999 silver book
Index
End User License Agreement
List of Tables
Chapter 3
Table 3.1 Typical PPP Structure
Chapter 4
Table 4.1 Typical FIDIC forms used for the split‐contract approach in hydropower construction contracting.
Chapter 10
Table 10.1 Languages spoken in Southeast Asia
Chapter 14
Table 14.1 Presents a summary of existing studies of construction cost overruns in traditional procurement.
List of Illustrations
Chapter 1
Figure 1.1 Construction Project Risk Categorization Framework
Chapter 6
Figure 6.1 Four phases of the best value approach
Chapter 7
Figure 7.1
Figure 7.2
Figure 7.3
Figure 7.4
Figure 7.5
Chapter 14
Figure 14.1 conceptually illustrates construction cost at contract signature and cost overrun for traditional procurement compared to PPP.
Guide
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International Construction Contract Law
Second Edition
Lukas Klee
Advisor, LecturerArbitrator, Adjudicatorand ExpertWitnessOwner at Klee ConsultingPrague, Czech Republic
Copyright
This edition first published 2018
© 2018 John Wiley & Sons Ltd
Edition History
John Wiley & Sons (1e. 2015)
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Library of Congress Cataloging‐in‐Publication Data
Names: Klee, Lukas, author.
Title: International construction contract law / by Lukas Klee, Advisor,
Lecturer, Arbitrator, Adjudicator and Expert Witness, Owner at Klee
Consulting.
Description: 2nd edition. | Hoboken : Wiley, [2018] | Includes
bibliographical references and index. |
Identifiers: LCCN 2018003980 (print) | LCCN 2018004778 (ebook) | ISBN
9781119430469 (pdf) | ISBN 9781119430520 (epub) | ISBN 9781119430384
(cloth)
Subjects: LCSH: Construction contracts.
Classification: LCC K891.B8 (ebook) | LCC K891.B8 K54 2018 (print) | DDC
343.07/8624–dc23
LC record available at https://lccn.loc.gov/2018003980
Cover Design: Wiley
Cover Image: © pixelparticle/Shutterstock
About the Author
Dr. Lukas Klee, LL.M., Ph.D., MBA, is an independent expert in international construction contracts, adjudicator, arbitrator, state‐registered expert witness, and currently the owner at Klee Consulting. He lectures on international construction law and contract management, for example, at the Brno University of Technology, Charles University in Prague, and other universities. Lukas regularly gives lectures for many organizations including FIDIC, provides training and consultancy, publishes articles worldwide and is the author of several books related to international construction contracts.
Contact details: www.klee‐consulting.com
Foreword
Svend Poulsen
Chief Project Manager, COWI Consulting Engineers, Chairman FIDIC Contracts Updates Task Group
We often hear the word “project” when work needs to be done. “I have a project at home” is a regular phrase in daily conversation. In general, we see more and more of our life as a series of projects. Going on holiday is a project; preparing a dinner with friends can be a project and training for a marathon can be a project. This mindset is likely to be something we have adopted from the construction industry.
One of the first things you notice when starting work in the construction industry is that the unknown has a major impact on any project. You can even divide the unknown into the “known unknown” and the “unknown unknown.” The way to handle the unknowns is to use tools developed in the risk management field. These tools have been developed over many years and, when used correctly and continuously, can lead to more successful projects.
We do not know all the risk aspects when starting a project. For example, can we know and predict all the risks and problems associated with an industrial process for mass manufacturing? Designing a new car is a project. Once the design is agreed upon and all the details for manufacture are in place, the task is complete. The next step is industrial production with certainty of performance and quality of the car known—at least in principle.
Projects in the building and construction industry are unique and often only have a limited aspect of industrial process. For example, construction might use some well‐defined processes such as the laying of sleepers and rail on a railway using a track‐laying machine. However, uncertainty of the sub‐soil conditions and other specific local conditions for the completed works will always sow the seed for risks and surprises. During execution of the works, the weather, the market situation, labor availability, and so on influence the progress and certainty of achieving the agreed quality, budgeted price, and finishing date.
An essential element of any project is the need for good agreements between the parties to a project. Since the 1950s, FIDIC has produced standard contracts for the construction industry. The principles of these contracts focus on fair risk sharing and the most effective mechanisms for administering the project. FIDIC contracts for construction and design‐build make the engineer the responsible party for administering the contract and managing the project. Thus, FIDIC contracts are two‐party agreements for a three‐party process.
The role of the engineer is an issue that is often discussed. As an example, how can the engineer avoid actual or apparent bias toward/against the contractor when being paid by the employer? The engineer is an agent of the employer but their job is also to act fairly when making determinations under the contract. Contract conditions do state this obligation and it is paramount for the correct administration of contracts that the assigned engineer acts in accordance with this requirement. One of the advantages of having an engineer and not a project manager is that the engineer has the technical understanding of the project complexity and can manage the project so that questions and unforeseen events are handled properly. Therefore, it is very difficult to succeed with a complex project without the right understanding of the contractual arrangements and the nature of the project.
In the construction business, various kinds of standard contracts are available and set different priorities depending on where they are from. Some have a very strong focus on administrative procedures and are very prescriptive. Others set up a standard framework for the contract and are very dependent on a set of special or particular conditions. Thus, choosing the right form of contract from the outset is critical. The employer should think about how they want to monitor the project and handle risks. On one side of the spectrum are the works designed by the employer and, on the other, turnkey agreements. Some extreme versions of the latter place all risk on the contractor. Risk and influence, therefore, go hand in hand.
Transfer of all risks to the contractor under a turnkey form of contract gives the contractor full control of the processes to mitigate consequences of risks. The employer has to accept that by transferring risk, they also transfer control. Why is this form of contract so popular then? Answer: the industry has seen a growing need for certainty of price and time. Financial institutions focus on budgets and time more than ever. Under these circumstances, it is extremely important that the technical requirements for the project are well defined because changes at a later stage are, in principle, not possible.
The reader of this book will see that there are a lot of people in the industry striving to make projects successful and they put in a lot of effort into improving contracts, procedures, and tools to become even better at managing complex projects. Our industry has produced spectacular achievements throughout modern history. In particular, the world's need for efficient transport has been a huge driver for the engineering industry. When new and more efficient transport is introduced, society prospers. Today the focus on sustainability also influences the way we design and construct. New ways of working, new ways of cooperating, and new types of projects call for new types of agreements.
Whether you read this book from cover to cover or as reference guide, you should realize that because of this book your contribution to more successful projects will have a higher value. The book gives you access to a treasure chest of knowledge collected by experienced engineers and contract managers—experience you can use when faced with the challenges that projects bring—challenges that arise from the basic fundamental nature of projects themselves.
We who work with projects know that successful projects give out positive energy and a good feeling of developing our society. With this book in hand, it is now your turn to feel the power of this positive energy.
Acknowledgments
Many thanks to Andrea, Sam, Ben and the whole family.
Special thanks to Martin Udall as English language editor for his tireless work and assistance.
Many thanks to Paul Sayer and Viktoria Hartl‐Vida.
Many thanks to all my friends and colleagues who contributed with a vignette or helped with particular chapters. Your worldly insights have given this book a truly global perspective:
Dina Al Ansary, Andrey Artyushenko, Faisal Attia, Yaryna Bakhovska, Tamás Balázs, Mark Berry, Sarah Biser, Alex Blomfield, James Bremen, Giuseppe Broccoli, David Brown, Yasemin Cetinel, Donald Charrett, Rupert Choat, Simon Collard, Manuel Conthe, Alberto Croze, Ignacio De Almagro, Jaap De Koning, Cristina Della Moretta, Arran Dowling‐Hussey, Andrew Downie, Gregory Efthimiu, Bernd Ehle, Marc Enenkel, Randall Essex, Karel Fabich, Remon Farag, Thiago Fernandes Moreira, Zachary Ferreira, Caio Lucas Gabra, Sean Gibbs, Stephane Giraud, Klaus Grewe, Nigel Grout, Aris Gulapa, Sarwono Hardjomuljadi, Matthew Hardwick, Khalil Tayab Hasan, Andy Hewitt, Rob Horne, Shy Jackson, Jacob Jørgensen, Patrick Kain, Knut Kirkhus, Gary Kitt, Richard Krammer, Aleksei Kuzmin, Vincent Leloup, David Lockwood, Husni Madi, Dejan Makovšek, Kamal Malas, Dan Kevin Mandocdoc, Rafael Marinangelo, Aleksandra Marzec, Aymen Masadeh, Christopher Mather, Joost Merema, Odysseus Michaelides, Christopher Miers, Cecilia Misu, Enrique Moncada, Conor Mooney, Samuel Moss, Farid Nabili, Chakravarthi Nandakumar, Dmitry Nekrestyanov, Takashi Okamoto, Karoly Tamas Olajos, Fernando Ortega, Gustavo Paredes, Edward Parrott, Jerry Pessah, Rishabh Raheja, Roger Ribeiro, Dario Rizzi, Robert Rubin, Patrizia Sangalli, John Sharkey, Michał Skorupski, Coenraad Snyman, Aidan Steensma, Claudia Adalgiza Teodorescu, Svitlana Teush, Frank Thomas, Victoria Tyson, Michal Uhrin, Steven Van Garsse, Vladimir Vencl, Katherine Waidhofer, Robert Werth, Alan Whaley, Wiebe Witteveen, Radim Wrana, Albert Yeu, James Zack, Fabio Zanchi, Zoltán Záhonyi, Shuibo Zhang, Josef Žák, Petr Dobiáš, David Hruška, Xavier Leynaud, Alicia Martin, Hana Nevřalová, Ilya Nikiforov, Daniel Nový, Svend Poulsen, Zuzana Rollová, Ondřej Ručka, Tomáš Staněk, Roman Turek and Andrea Wernicke.
Introductory Remarks
Shuibo Zhang
Professor of international construction contracts, Tianjin University, People's Republic of China
God says, “If as one people speaking the same language they have begun to do this, then nothing they plan to do will be impossible for them.” (Genesis 11:6)
The modern era has brought with it a never‐before‐seen demand for high‐quality and high‐quantity civil infrastructures and industrial facilities. Their importance cannot be underestimated in raising the living standards of human beings, particularly in developing countries. Estimates of global demand for infrastructure over the next decade is somewhere between US$10 to 20 trillion. Meanwhile, with the advances in productivity, construction projects are getting larger in scope and more complex in technology. They usually involve an input of vast resources, including human expertise, equipment, and various materials, among other things. This makes it very hard, if not impossible, for a single country or region to cope alone. In addition, comparative advantages make it more likely and efficient for construction‐related firms from all over the world to work on the same project. As a matter of fact, large and global projects are ubiquitous on current international construction markets. Take China's World Bank‐financed Xiaolanglangdi Multipurpose Hydro Project as an example. More than one hundred organizations participated in the construction, including contractors, subcontractors, suppliers, and consultants, from over 50 countries/regions. This project was thus nicknamed the “small United Nations.” According to the Engineering News Record, the overseas turnover of the top international 225 contractors has been increasing for the past 10 consecutive years, reaching a total of US$511 billion in 2012 compared to US$116 billion in 2003. This indicates an annual average growth rate of more than 15%.
Indeed, the construction industry has been globalizing with the globalization of the whole world. However, globalized construction projects are temporary and inter‐organizational activities and require intense communication and coordination efforts from many participants who possess different cultural and legal backgrounds. Such institutional differences tend to act as obstacles and pose problems in communication among project participants, resulting in poor coordination, misunderstandings, chaos, and even unfortunate project failures. The project of the A2 motorway in Poland undertaken by a Chinese contractor is a good illustration of the latter situation. The frequent occurrence of disputes in international construction is an ever‐occurring phenomenon. Therefore, a good mechanism must be designed to alleviate such a situation—namely, the construction contract. This document, at its core, is designed to make all participants speak the same language.
Project contracts are legally enforceable and binding, and managerially instrumental, offering “the rules of play” to act as a guide for the parties to work together. To cooperate efficiently and effectively, it is a must for all parties involved in international projects to have a good understanding of the rules first. However, due to the very nature of construction contracts and the different legal systems governing each individual contract, confusion may arise in the understanding, interpretation, and execution of a given contract. For construction project professionals in general, this presents a challenge unless they are well informed with sound knowledge of construction‐related contractual and legal issues. To the best of my knowledge, very few books on the market are available to explicitly deal with this topic.
I am pleased to learn that Dr. Lukas Klee, an experienced lawyer in international construction, has filled this gap with this new book that specifically targets international construction contracts in practical terms. This book covers the key legal and contractual knowledge areas for international construction, such as civil law/common law interrelationships, delivery methods, standard forms of contracts, risk allocation, variations, claims, dispute resolution, insurance, and securities. Accompanying these subjects, the lessons learnt from the industry and many vignettes collected from all continents make this book a real “international” and “practical” guide. The comprehensive knowledge conveyed in this book, in my personal judgement, will perfectly cater for the urgent needs of international construction professionals.
I am confident that this new book will be a great help to professionals allowing them to speak the same construction language in international projects and, in turn, will facilitate them in building a stairway to a better world in an efficient and harmonious way.
Introductory Remarks
Robert Werth
Owner of Werth‐Consult Dispute Resolution Services, Essen, Germany
Construction law literature is usually written by lawyers for lawyers. This often means that texts are very technical and contain a lot of law‐related jargon. To a large extent this is necessary, but may exclude or “scare off” the majority of construction project practitioners.
My daily business experience has shown me that the biggest issues in international contracts are managing communication and understanding of the behavior of people. We all know that international contracts are usually large, contain/demand complex documents and we could assume that the people involved have the proper skills to do the job. But do these people have the proper skills under the conditions agreed to under the terms of the contract? Many construction project participants (usually engineers) use their skills gained from working with domestic construction contracts and apply this knowledge internationally. Effectively, this often means that the job goes ahead, irrespective of what the contract says. This approach may be correct from a technical aspect, but riskier when considering the administrative requirements under international contracts.
For these reasons, the most important issues for management staff when dealing with international contracts is an understanding of (1) the contract itself; and (2) the legal system in which it operates.
The advantage of this book is that it covers all important international construction law aspects in a comprehensible, easily readable, and user‐friendly manner. This enables finding a common understanding of an issue, before it can be discussed in terms of specific contract conditions in a particular case. It is an essential reference for all parties involved directly or indirectly in international construction projects.
This book is particularly helpful because it contains a number of practical examples from real “on‐site” experience that can assist the practitioner to immerse themselves quickly into the specifics of construction projects. This also makes the book interesting and “readable.”
I highly recommended this book to anyone involved in international construction contracts, wherever adequate. And there was something unique, I have noticed, when I made some recommendations about that book during lectures in many places of the world. People replied: “I have read that book,” which is different to just saying “I have or own that piece of literature.”
And that is what makes the book different. It is a book to be read, not owned, written by practitioners. And finally, I am really proud to be a member of that illustrious team behind Dr. Lukas Klee to support him and also making one of the best even better. Thank you, Lukas.
Introductory Remarks
Ilya Nikiforov
Managing Partner, Egorov, Puginsky, Afanasiev & Partners, Russia
My experience with international contracting in Eastern Europe, Russia, and the CIS spans some 25 years. I have learned that in spite of international prominence of commonly applicable construction practices (e.g., under FIDIC standard forms of contract) their use and implementation in construction projects are relatively unknown in Russia and the CIS. Domestic industries in the region work on the basis of traditional workflow documentation and contract writing dating back to the socialist era. These practices experience substantial turbulence when international construction projects “come to town.” Typically, there is a conflict of expectations of accepted standards of contract and the rights and responsibilities of the parties.
In a fast‐moving and globalized world, developers and constructors need a quick‐reference guide to manage their expectations in an international construction project environment. As a professional in this field, I have many books in my legal library dealing with construction projects. However, these are mostly limited in their scope to a particular legal system or territory of implementation. First edition of this book has broken a new grand of omnibus coverage of construction topics at a global level.
Construction disputes are infamous for being costly, lengthy, and voluminous. In an industry where “time is money,” participants in the field need knowledge, a calm head, and oversight to minimize delays and keep the project moving. This book is a vital tool for making this possible. Therefore, it is of great benefit to all private consultants involved in the industry, engineers in developing countries and emerging markets where international practices of implementation of infrastructure projects are just becoming known will find it particularly useful. The title also appeals to in‐house counsel and private practitioners for whom construction law is not a mainstream practice area. It's also a “must read” for the wider audience of consultants, surveyors, architects, employers (public and private), and domestic construction industry specialists.
This book is praised for its practical approach, lucidity of text and clarity. The author's experience, know‐how, and international prospective in major construction company make him perfectly positioned to write this text.
The book has the further advantage of being written by an author from a non common law country. He provides a unique, fresh, and unbiased look at the subject matters as they stand today, for example, the chapters on claims and claims management. These two chapters are literally “from the front lines” and convey the author's experiences in a practical way.
The majority of prominent publications are written by Anglo‐American authors. Mr. Klee was trained and practices in a continental European law setting. The legal system is based on Roman and Napoleonic Law principles that operate not only in continental Europe, but also in South‐East Asia, the Middle East, Africa, and South America. For this reason, readers in these jurisdictions will find this title an invaluable, relevant, and user‐friendly tool to solve daily questions that arise in construction, for instance, how to apply the standard forms of contract developed in common law countries locally. Common law practitioners will benefit from knowing what to expect when dealing with colleagues and partners in non‐common law countries.
A key feature of this book is the fact that the author is not a native English speaker. Most of the forms and precedents relating to the subject matter are in English. Thus, the author is in the best position to assess “translation difficulties”—in other words, managing the linguistic aspect. Readers will become familiar with technical terms used in the industry. Moreover, the reference material included in the appendices—charts/diagrams, a dictionary of construction terms, add great value, and facilitate learning. This treatise is an information source, which the reader will turn to time and time again as construction project demands unwind and develop.
Supranational construction law lives and develops primarily through arbitration. Arbitration awards are not systematically published and the counsel who practice in the field “learn by doing.” Unfortunately, the benefits of experience of arbitration are seldom passed down to other participants of construction projects (including to those whom counsel represent). The book is generously enriched and illustrated by case studies and references to arbitration awards, decisions, and findings of arbitration tribunals. It is an entertaining and excellent supplement to the black letter law.
We have all been told to write in plain, easy‐to‐understand terms, to avoid legalese and to employ construction industry terms where possible while maintaining accuracy. This is not always an easy thing to do. The title successfully implements these principles and empowers its readers to steer the construction project.
1International Construction Projects
1.1 The unique nature of the construction industry
The construction industry does not have clearly defined borders and its characteristics range from simple to complex. Construction supplies basic materials (such as aggregate, cement, steel reinforcement, and pre‐packaged mixtures) right up to cutting‐edge technology developed and used by experts. The industry has contributed to, and is a vital element of, almost everything we see around us. For example, the diversion of water courses, land reclamation, houses, shopping centers, offices, factories, health care facilities, and large infrastructure‐related civil engineering works such as bridges, tunnels, highways, airports, and harbors. Others installations include water treatment plants, dams, nuclear power plants, wind power plants, and projects in the field of electricity generation. The contribution made by the construction of factories, warehouses, and production lines that serve other industries, (including mining and research centres) cannot be ignored. The particular activities relate not only to new construction works, but also repairs, extensions, reconstructions, and demolitions.
The diverse nature of the construction industry reflects the complexity of contemporary society as a whole, leading then to necessary specialization of particular activities in construction. A construction project is further composed of complex processes, services, and supplies reaching beyond the scope of this industry alone. For example, insurance, financing, bonds and guarantees, purchase of plant and equipment, security guards, operations, and maintenance of work processes.
1.2 Individuality of construction projects
A construction project is a specific process or, rather, a sum of many processes. Mostly, it is an individual process. There are variables relating to the positions of its participants, their assignments and relationships, external conditions (concerning the economy, the nature of the site, climatic conditions, project risk, and hazard levels in general), project management and delivery methods, procurement methods, and public support.
Construction projects face hazards of various kinds, caused either by humans or natural elements. Therefore, people, time and environmental elements play a major part here. The construction project itself tends to be a unique setup of processes with unpredictable impacts caused by individual hazards. For large construction projects, their duration will often exceed two years. These projects are realized over extensive areas and are often difficult to safeguard perfectly. Therefore, a construction project is not a production line you can just program to smoothly create a product, within a well‐defined time, quality, and financial outlay.
Design errors, extremely adverse climatic conditions, unforeseeable on‐site conditions in physical or social terms, site access‐related issues, building permit problems, delays due to the requirements of environmentalists, and variations are just some examples of potential complications.
Effective risk management must be the aim of everyone involved in a construction project. In other words, to identify patterns and potential problems, variations, hazards, and risks in order to manage them effectively. This can only be achieved through the perfect preparation of each particular project. This is the theory.
However, in practice, the lowest bid price tends to be the most important criterion in public tender evaluations nowadays. This is also a reason why contracts (for works or for design) that determine particular project relations must anticipate and involve transparent, efficient, and reasonable solutions to potential problems and complications.
1.3 Roles and relationships
In the course of time, five main groups of construction project participants have emerged as major players in the construction industry. These groups are directly involved in construction projects or have an influence or a particular function within the industry. They are the contractors, designers, regulators, employers and users (Murdoch and Hughes, 2008). Lenders (banks), insurance, and reinsurance companies must also be mentioned as further (indirect) construction project participants because of their significant influence on construction projects. We will now discuss these important roles in the construction project.
1.3.1 Contractors
Most frequently, contractors can be encountered as either global or local construction companies. Construction companies differ in specialization and size—from small contractors for specialized activities up to supranational organizations that enjoy major industrial and political influence.
In the field of large construction projects, contractors often collaborate within joint ventures, setting up delivery chains at numerous levels. A general contractor enters into relationships with the subcontractors who further delegate parts of their obligations down to other specialized trade contractors, and so on down the chain. A particular delivery method will influence the positions of the individual contractors.
1.3.2 Designers
The role of a designer is to provide the employer with solutions, drawings, and specifications. Working on a construction project, the designer will often provide project management, contract administration and supervision services to the employer. When hearing the word “designer,” one usually imagines an individual, but less often a company providing the services in support of construction project realization. Today, the latter prevails, as design works becomes ever more demanding and too large to be dealt with by an individual on their own.
1.3.3 Regulators
In the construction industry, regulators apply their professional expertise, for example, in the following areas:
land planning and related processes;
building permit applications;
health and safety;
environmental issues;
quality assurance;
to ensure fair business competition; and
to ensure proper management of public resources.
1.3.4 Employers
Project realization by the contractor is a service to the employer. Someone about to build a house for their family may be an employer. A developer, who is funding a shopping center construction to sell to potential operators, may be an employer. The employer themselves may be a future owner or an operator.
A taxpayer, who is financing public projects via a public authority in the fields of transportation, infrastructure, construction of prisons, health care facilities, and so on, can also be considered an employer. An employer's characteristics depend, therefore, on whether the related funds are public or private. Significant differences between the private and public employers can be encountered. For example, in France, the contractor cannot suspend the works if the employer does not pay for the works performed in a public project. The so‐called “l'exception d'inexécution” known in private projects in France cannot be used. According to Article 48‐3 CCAG Travaux 1976, the contractor can suspend the works only after three unpaid monthly invoices (Wyckoff, 2010).
In contracts, the employer is often referred to as “the owner,” “the buyer” or “the client,” and so on. For the purposes of this book, we will mainly use the term “the employer.”
1.3.5 Users
All of us are users of products that are the result of construction efforts—whether we like it or not. Our views on construction projects are often subjective and vary for many different reasons. Other vital aspects are how the public perceive the inconvenience and nuisance that can occur during the course of construction or if the public really think that there is a need for a particular building. Specific traditions and cultural influences of the relevant society are a significant factor as well.
As a field of activity, the construction industry is traditionally burdened by uncertainties that may cause distrust between the employer and the user.
1.4 Contract administration
Construction contracts are different from other commercial agreements because of the high degree of uncertainty. While the contract documents will provide a definition of the scope of works to be performed, a high degree of project complexity still leaves a lot of room for uncertainty along the way to the final result. This makes the task of administering the contract an important part of the larger process of “managing uncertainty.”
Furthermore, the question of “moral hazard” is sometimes mentioned (Winch, 2010), that is, the difficulties the employer can face in ensuring that the contractor will perform the contract in good faith and bring it to its desired outcome. As a rule, the contractor possesses better technical and managerial skills than the employer. The absence of a proper contract that will provide clear terms and procedures regarding all relevant aspects and an efficient risk allocation may leave the less‐informed employer exposed to the risks associated with moral hazard and suffering from a potentially severe compromise regarding the desired outcome.
On the other hand, large public procurement construction projects are often accompanied by political irresponsibility on the employer's side, mainly when problems are encountered. Nobody wants to be responsible for cost overruns and delays. To avoid responsibility, employers sometimes shift the risk of negative consequences of badly prepared projects onto contractors (e.g., delayed expropriation risk or bad ground conditions risk in underground works). Such “one‐sided contracts” actually negatively affect the smooth implementation of projects and consequently are considered disadvantageous to the borrowers due, among other things, to the late completion of the project (JICA, 2011). If this is done systematically, it is also dangerous for society. From a socioeconomic point of view, it leads to frustration and a waste of resources in the short term and more expensive construction works and damage to the local economy over the long term.
Corruption is another “moral hazard,” which is much more serious and can cause damages to the construction industry as a whole.
There are certain well‐known rules of risk allocation. The ultimate rule is that risk allocation must be efficient and if there is a non‐insurable risk that is hard to quantify, the risk should be borne by the one who bears the majority benefit. It is self‐evident who bears the majority benefit if it is a public construction project. In this case, it is the employer and the users. Furthermore, the state as an employer is often the stronger party (applying a take it or leave it approach to contracts). Thus it seems to be appropriate to apply the principles of protection of the weaker party (the contractor) in such public construction projects.
Another principle that must be stressed is the principle of good faith protection. The governing law usually does not protect the one who is not fair, misuses their position and, as in the case of public employers, invites contractors to deliver projects where risks are speculatively shifted onto contractors and the terms of reference of the particular contract happens to be a sophisticated trap.
Another problem seems to be the fact that international contract forms are often “imported” to developing countries. Naturally they are less familiar to the local employers in both legal terms and working procedures (Banica, 2013). Employers in both the private and public sectors do not pay enough attention to the uneven knowledge asymmetry when facing and entering an agreement with a contractor, as well as to the need to manage this risk through contractual means and by employing a consultant as contract administrator or project manager. Employers tend to show an exaggerated optimism and focus extensively on establishing an initial contract price, without a clear understanding of the importance of setting clear rules regarding the management of change, regardless of the source of the change such as claims, variations, disputes, additional work, and so on (Banica, 2013).
Add to this the fact that the construction industry in developing countries (still in the first stages of modernization) has not yet formed a body of knowledge or produced a significant number of contract managers/consultants familiar with international contracting and procurement practice and the local specificities and working culture (Banica, 2013).
The position of the “contract administrator” is of key importance. A contract administrator hired by the employer on a professional service agreement basis deals with coordination, monitoring, supervision of compliance with standards, certifies the works done, testing, taking over, participates in variation, price and time management, claim evaluation, contract interpretation, and dispute avoidance. They should help to complete a successful project in a fair way and in accordance with the contract, achieving the demanded standard in the agreed time and for the agreed price.
The contract by itself is not enough to solve the problem of moral hazard and the asymmetry of knowledge between the employer and the contractor. The second key element required is the presence of a third contractual party—namely, the contract administrator (Banica, 2013).
In terms of contract administration, there are three usual arrangements in force:
The “engineer” as an employer's agent, whose job is to monitor and supervise the work, whose duty is to make fair determinations on certain matters (e.g., on claims for extension of time and additional payments; see an example of such determination in Appendix B). The engineer issues certificates on payments, taking over, and performance.
The employer's representative where the contract is administered directly by the employer or its representative. This is often the case in small projects or under EPC or PPP project with large shift of risk to the contractor.
The construction manager as an employer's agent hired to coordinate all processes on a professional service agreement basis without direct responsibility for design and works (see
Chapter 3
).
1.4.1 The Engineer
The engineer's rights and duties consist simultaneously of two parts. The first is acting on the employer's behalf, where the contractor can take the engineer's conduct as the employer's conduct and misconduct (such as the engineer's instructions regarding variations). Acting in their second role, the engineer is an impartial third party who is professionally skilled to maintain an equitable balance between the contractor and the employer (such as in settling disputes). The independence of the engineer (an entity/person appointed and funded by the employer), often becomes the topic of numerous debates. It is in the interests of all construction project participants to ascertain and clarify the engineer's competencies to limit disputes about who will, in fact, act as the engineer on a particular project. The question, “What are the attributes of the engineer and when can a party be said to have tacitly accepted someone as the engineer?” (ICC, 2009) was answered, for example, in the ICC case no. 10892 (the tribunal found that the engineer was the employer itself in this case).
A competent engineer (allowed to do their work by the employer) is in many cases a mandatory prerequisite for a successful construction project. A company or a group of consulting engineers and designers are mostly acting in the role of “engineer.” Their specific representatives have to be appointed for particular activities. An engineer can also be an employee of the employer, but this may be a problematic approach in practice. In respect of this, Jaeger and Hök (2010, p. 222) refer to a decision of the Arbitration Court of the International Chamber of Commerce. In this case, the arbitrators dealt with the replacement of the engineer with an employee of the employer (where the employer was a statutory body). According to the arbitrators, this replacement resulted in contract frustration. The authors support the view that it is unacceptable for the employer and the engineer to come from the same organization. However, in this case, the International Federation of Consulting Engineers (FIDIC) conditions included an express impartiality clause.
As a rule, the engineer's individual rights and duties are assigned by a particular agreement with the employer. The engineer is typically entitled to give the contractor instructions related to work executed (and to remedy any defects) and the contractor is obliged to follow their instructions. The engineer must usually, for example, clarify any ambiguities and discrepancies should they appear in the contract. But it is not within the engineer's powers to change the contract—they are not, therefore, empowered to relieve either of the parties of their duties, commitments, or responsibilities arising from the contract. Their assignment does not exempt the contractor from any liability they have under the contract.
The engineer should be a professional with all necessary skills and experience, and have a good knowledge of the contract and contractual procedures (e.g., methods of re‐measurement, extension of time procedures, and so on). The engineer should be able to foresee all legal, commercial, and technical consequences of their instructions, particularly those that lead to variations. They should be able to fairly evaluate the adequacy of new rates or prices where it is necessary to create them. The engineer should also be able to fairly determine—in terms of claims—additional payment or extensions of time for completion (Jaeger and Hök, 2010).
According to the FIDIC CONS MDB/Red Book (2005 MDB Edition), the engineer has the following roles (JICA, 2011):
Employer's agent
: the engineer provides the following services to conduct the contract management:
production of detailed design drawings under Sub‐Clause 1.9;
issuance of instructions for variation of the works under Sub‐Clause 13.1;
