UK: Developing The Infrastructure That Keeps The Commercial World Moving

Welcome to the current edition of Clyde & Co's Infrastructure Newsletter, written by our legal experts active in the sector. This newsletter is a regular publication in which we review developments and opportunities globally.

This edition primarily focuses on Libya highlighting opportunities in the market, key legal and regulatory frameworks, as well as practical requirements for doing business in Libya. We opened an office in Tripoli in August 2012, and are the only UK law firm licensed to operate in Libya.

Libyan infrastructure sector

Libya is not an easy market; the security situation remains a challenge and the government is focusing much of its efforts on creating a safe and secure environment for its citizens. The new National Congress is also devoting a lot of its time to constitutional matters and ensuring that its new Ministers and heads of institutions have the right credentials to lead the country forward in a fair and transparent way. Because of these enormous challenges, there has not yet been the level of focus and progress in the planning, development and execution of much needed new infrastructure projects that some had hoped for.

Given the above, consultants, contractors and developers of infrastructure projects should continue to focus their attention on future opportunities in the country. Assuming that the security situation continues to improve, there are going to be tremendous opportunities in just about all sectors. Oil and gas will clearly be a main priority, but education, healthcare, utilities, housing and IT have all been identified as critical needs for the country.

Renewables

The Ministry of Electricity & Renewable Energies in Tripoli have recently announced that they are committed to solar as an energy source, planning for 3% of the country's capacity to be met by renewables by 2015 and 20% by 2020. Libya has the second highest levels of solar radiation in the world, whilst high average wind speeds in several locations also make it an attractive destination for wind farms. Evidence of the government's intentions towards green energy has recently been demonstrated by the Undersecretary's announcement in January 2013 that a new 650 M/W solar plant is to be built in Obari in the south of the country.

More recently, in April 2013, the Ministry of Energy announced that it was preparing tenders for two new solar plants.

Other plans previously announced by the Libyan government for renewable energy include:

  • thermal heating plant with annual production capacity of 40,000 units

  • wind farm projects in Dernah, Al Maqrun, Emslatah, Tarhunah, Asaba, Gallo, Almassara, Alkofra, Tazarbo, Aljufra, Ghatt, Ashwairef, and Sebha

  • feasibility studies for a 100MW concentrated solar power plant at Sebha, a 50MW CSP plant in Ghadames, and a 15MW photovoltaic plant in Shahat

Conventional power

Libya continues to experience a shortfall in power and as the country begins to grow and develop, the country's limited power generation capabilities will come under increasing stress. Grid connections allowing the country to import power from Egypt and Tunisia will provide temporary solutions for the country but going forward, the country will need to build new plants. For the time being, it is almost certainly the case that these new plants will be built on a conventional procurement basis with foreign contractors being asked to tender for the works. Going forward, however, there is some discussion about moving to build-own-transfer style independent power projects. This style of procurement was under discussion prior to the revolution but it is going to be quite a challenge to execute any project on a structured finance basis unless and until various legal reforms are made to the existing legislative framework, including the ability for financial institutions to take a proper security package.

Healthcare

At present, those with the financial resources to do so will almost certainly seek to travel outside the country for healthcare services. Libya's healthcare system prior to the revolution was poor and after the revolution the system has simply been unable to cope. One critical problem is the lack of primary health care facilities, such as local clinics and district hospitals. Libya has less than 1500 of these, for a population of 6.5 million. Additionally, many of the healthcare workers in Libya prior to the revolution were foreign. Most left the country during the revolution and have not returned.

A direct result of the lack of domestic services is that tens of thousands of Libyans are currently receiving healthcare abroad, which costs the Government millions of dollars per day. The system has also been abused by many people who have used the chaotic post-revolution period to make overseas trips and seek expensive overseas treatment in contravention of the policies and guidance laid down by the competent authorities.

The Government therefore urgently needs to build new facilities, manage those facilities properly and train staff to provide the levels of healthcare services that the Libyan people so desperately need. The specific sectors where there appear to be immediate opportunities for international healthcare infrastructure players are building and managing new primary healthcare facilities (possibly on a PPP basis) and providing new laboratory and radiology facilities for the country.

In order to move forward with some of these initiatives, various difficult bureaucratic processes and unclear guidelines need to be addressed by the competent authorities. In particular, the Government needs to give investors comfort that licences granted to private clinics will not be revoked without due cause in accordance with proper due process. At present, many private sector investors are deterred by the fear that their licences may be revoked after they have expended significant time and resources developing new facilities.

On the plus side, the development of a fledgling private healthcare insurance market is sending the right signals to healthcare investors that demand for new private sector facilities will continue to increase in the future, as more individuals take out these types of policies.Telecoms

The two major players in this sector are the General Posts and Telecommunications Company (GPTC) and the Libyan Posts, Telecommunications & Information Company (LPTIC). Both of these are state-owned entities and to date, there is no private sector participation in either the telecoms or internet service provider market. The Government flirted with the idea of bringing in private sector investment expertise prior to the revolution, and is now actively looking at options as to how it might do this.

In April 2013, it was announced that the Libyan Ministry of Communications and Informatics had appointed a high-level committee of telecommunication experts and lawyers from the ministry as well as from outside to draft a new Telecommunication Act that will replace the existing legislation.

The stated aims of the new law are:

  • to create an independent telecommunication regulatory authority, with clear and transparent terms of reference that set out the authority's functions and powers
  • to promote and protect competition in the telecommunication market
  • to ensure delivery of the highest quality of services at competitive prices to end users across the country
  • to encourage Libya's private sector to participate in building and improving telecommunication services in the country

It is still uncertain whether private sector participation will be done through issuing new licences to international companies, allowing the private sector to buy into the existing state-owned incumbents, Libyana and Al Madar, or simply by offering management contracts to international companies to come in to re-organise and modernize the existing state owned enterprises. Whichever option is selected by the Government, it seems inevitable that we are going to see opportunities for the private sector to participate in this industry.

In addition, Libya is developing a national frequency plan covering the frequency range from 8.3 kHz to 275 GHz, which is expected to be delivered by mid-May 2013.

Waste management

Rapid population growth, changing consumer habits, transportation difficulties and environmental challenges relating to economic growth have led to a significant increase in the amount of waste produced in Libya and it is currently piling up across the country; at the entrance to cities, on main streets and within residential neighbourhoods. It includes household rubbish, construction rubble, industrial and agricultural waste products and medical and radiological hazards.

Thus far a shortage of (1) machinery and equipment necessary for the process of collection, transport and final disposal, as well as (2) trained and qualified specialists in waste management, means that waste produced is not being effectively managed and is beginning to have a serious detrimental affect on Libya's society and economy.

In July 2012, details emerged that the Libyan government had issued a major waste management tender on a build-own-transfer basis, covering waste collection and management for the entire country for a period of ten years and the government announced prequalification for construction of landfills for hazardous and non-hazardous waste. Earlier this year, the Prime Minister acknowledged the problem of mounting waste in Libya and stated that international companies will be invited to tender if local companies were unable to carry out the work. Banking

The Libyan banking sector is supervised by the Central Bank of Libya, which is responsible for the licensing and supervision of commercial banks and regulating credit and interest. It is also the main shareholder of most banking assets in Libya. While there has been an increase in privatization in banking, much of the sector remains under Government control. Libya has a total of 17 commercial banks but the banking sector remains dominated by four companies, three of which are state-owned: Gumhouria, Sahara, Wahda and National Commercial Bank. These four account for about 90% of total bank assets.

Whilst there is great optimism for the future, the reality is that Libya is a difficult market to operate in. According to the Global Competitiveness Report 2012-2013, Libya is ranked 140 out of 144 in financial market development whilst access to financing is the third most problematic factor for doing business behind corruption and inefficient government bureaucracy. Until a clear regulatory system is established and the commercial banking sector's infrastructure is reformed these problems will continue to restrict growth.

The banking sector is set to undergo a process of modernisation with the introduction of new ICT systems, the launch of new products and services, and the development of a sales and marketing culture. Under the new Libyan authorities, these developments should gather pace. A renewed commitment to improved transparency, the strengthening of internal governance and the creation of a functioning bond market to help smaller businesses raise money to fund new projects and expansion plans will create further opportunities for international partners.

In 2012 an Islamic banking law was approved which will introduce Sharia-compliant banking within the country. The Libyan authorities envisaged several options for Islamic banking services including the granting of licence to conventional banks to open branches or windows for Islamic finance and permitting conventional banks to adopt Islamic banking. In March 2013, the governor of Libya's central bank said the Libyan government will soon be ready to issue licences for Islamic banks. However, as at the date of this article, no such licence has been issued.

Whilst there is great optimism for the future, the reality is that Libya is a difficult market to operate in. According to the Global Competitiveness Report 2012-2013, Libya is ranked 140 out of 144 in financial market development. Furthermore, access to financing is the third most problematic factor for doing business in Libya, behind corruption and inefficient government bureaucracy. Until a clear regulatory system is established and the commercial banking sector's infrastructure is reformed these problems will continue to restrict growth.

A significant development in 2012 was the approval of an Islamic banking law which will introduce Sharia-compliant banking within the country. The Libyan authorities envisaged several options for Islamic banking services, including the granting of licences to conventional banks to open branches or windows for Islamic finance and permitting conventional banks to adopt Islamic banking.

Adrian Creed

Partner, Abu Dhabi

T: +971 2 4943 501 E: adrian.creed@clydeco.com Understanding Libyan production sharing agreements framework

George Booth, Partner, London Amir Kordvani, Associate, Abu Dhabi

This article considers the legal and regulatory framework affecting the oil and gas industry in Libya, and in particular will outline and analyse the material terms of the Exploration and Production Sharing Agreements (EPSAs) that govern the relationships between international oil companies (IOCs) and the Libyan National Oil Company (NOC).

The Libyan Oil Regime: background

Libya's key petroleum legislation is the Petroleum Law No. 25 of 1955, which came into force the same year that saw the first Libyan concessions awarded. In 1974 the Libyan government introduced the first EPSAs. Numerous versions of the EPSA have been released since its inception with the latest being EPSA-IV, introduced for the first time in conjunction with Libya's first post-sanctions licensing round in January 2005.

EPSA-IV terms

Selection criteria

The principal difference between EPSA-IV and its predecessor EPSA-III is that winners of EPSA-IV contract bidding rounds are determined largely based on how high a share of production and the size of signature bonus each IOC is willing to offer the NOC. As a consequence, EPSA-IVs feature significantly higher production shares for the NOC than EPSA-III contracts. This method of determining bid winners is relatively unusual because, normally, the national oil company's production share is pre-determined in a model contract or is determined during the negotiations. Commentators have noted that the average overall NOC take for EPSA-IV blocks is around 88%, which is considered as one of the highest in the world.

Bonus payments

IOCs are required to pay two types of bonuses to the NOC, a signature bonus and a production bonus: a signature bonus is payable as part of the EPSA-IV bidding process whilst the production bonus, variable depending on the level of production, is pre-determined.

Ownership of assets

EPSA-IV contracts do not convey any ownership rights over oil and gas resources to the foreign operating companies. Rather, they are risk-based contracts under which the IOC undertakes to finance and carry out an exploration programme at its own risk, and eventually develop the resources if a commercial discovery occurs. If no commercially viable oil or gas deposits are found, exploration costs are borne entirely by the IOC; the acreage is released and can be offered to another party.

Revenue and costs

Under EPSA-IV, the NOC normally takes around 80-90% of the oil and gas production, while the foreign company must recover capital and operating costs and eventually make a profit from the remaining share in production. Under these agreements, the developer bears all exploration and appraisal costs. Development costs are to be shared 50:50 between the NOC and the developer. Operating costs are shared on the basis of the primary production allocation.

While under previous EPSA agreements the IOCs had enjoyed deals based on fixed margins, insulating them from fluctuations in the market price of oil, EPSA-IV terms are much more dependent upon market fluctuations which, whilst advantageous during high oil prices makes future returns more uncertain.

The Libyan government also has complete control, via the NOC and the Ministry of Finance, over exploration and development plans and budgets (which have to be pre-approved), capital and operational expenditure (which has to be certified to become eligible for reimbursement) and oil exports (for which a quota must be approved and separate loading schedule granted for each cargo).Arbitration

Under the EPSA-IV, disputes between the parties will be dealt with under the Rules of Arbitration of the International Chamber of Commerce (ICC) in Paris. The incorporation of an arbitration clause raises the feasibility of enforcing an arbitral award against a government entity, given its sovereign status and ability to influence the decisions of local courts.

For instance, if the NOC refuses to comply with an arbitral award in favour of the IOC, the IOC may encounter difficulties enforcing the award in Libya given that Libya is not yet a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention)1. Nor is Libya a signatory to the "International Centre for Settlement of Investment Disputes Convention", the primary purpose of which is to provide facilities for conciliation and arbitration of international investment disputes between states and nationals of other states.

In principle, enforcing an award should be possible via recourse to arbitration provisions under the Libyan Civil and Commercial Code but, in practice, this may not be a workable option, However, it is hoped that this situation may change under the new government.

It is worth noting that, under the New York Convention, if the NOC has assets in a New York Convention ratifying state, particularly illiquid assets, then the IOC may be able to enforce the arbitral award in that ratifying state.

One other possible solution is to secure a judgment or arbitral award in a State that is a signatory to the 1983 Convention on Judicial Cooperation between States of the Arab League (the Riyadh Convention). The Riyadh Convention applies to foreign judgments and arbitral awards and consequently an award from an arbitration conducted in a ratifying country would be the best possible option to enforce an award in Libya2. However, as far as we are aware this strategy has never been successfully applied in Libya.

Force majeure

The force majeure provision in the EPSA-IV contract allows for a suspension of performance of obligations whilst force majeure circumstances exist. The model EPSA-IV 2006 states: "Any failure or delay on the part of a Party in the performance of its obligations or duties hereunder shall be excused to the extent attributable to force majeure. Force majeure shall include, without limitation: Acts of God; insurrection; riots; war; and any unforeseen circumstances and acts beyond the control of such Party which render the performance of its obligations impossible." In the majority of instances, IOCs relied on this clause during the turmoil of 2011.

Investor protection

IOCs may have their investments protected under bilateral investment treaties (BITs) signed between Libya and numerous other nations. As of the date of this article, Libya had entered into thirty-three BITs with countries such as Jordan, Slovakia, Turkey, Singapore, Italy, Austria, Morocco, Croatia, Portugal, Switzerland, Belgium, Luxembourg and France. There are no BITs with the US or the United Kingdom.

BITs provide certain guarantees to investors of both parties to the treaty. Most importantly, an investment treaty restricts a contracting party from taking any action to deprive and limit the ownership of investors from the other contracting party. Were such a deprivation to take place, an investor from a contracting party would be entitled to initiate arbitration proceedings.

Recent developments

It has been reported that Libya is holding its own corruption review of the Gaddafi-era oil contracts. The National Transitional Council (NTC) announced that it was setting up an NTC Oil Committee with the power to end, amend or renegotiate current contracts if corruption is discovered.

However, the NTC tried not to worry established investors in Libya over the proposed review. It emphasised that all agreements and contracts that were signed with the old regime would be "respected" and that it had no intention of "nationalising or doing anything radical". It further stated that if a contract was found to be "unfair", then the Libyan authorities would work with the counter-parties to achieve an agreed solution.

1 This is an international convention providing for the mutual enforcement of foreign arbitral awards.

2 Certain countries which are signatories to the Riyadh Convention have well-established arbitration laws and arbitration centres (for example, the DIFC- LCIA in the Dubai International Financial Centre). Therefore, the IOC may seek to amend the arbitration clause in future EPSAs to provide for arbitration to take place in Dubai..

Back to page 1Libya: FS/Doing business

Halah Belazi, Legal Consultant, LibyaAdrian Low, Partner, Dubai

The Libyan General National Congress (GNC) looks to amend regulations of the financial services sector and to introduce Islamic financing into Libya for the first time.

In the past, the banking and finance sector in Libya was very limited and dominated by a few state-owned banks. Libya was primarily a cash based society and people were generally wary of the banking system. As a result, financial services have largely been limited to basic cash deposits and withdrawals to date.

The interim National Transitional Council (NTC) recognised that the country would need to have confidence in the banking sector to facilitate its future redevelopment. In order to help realise this objective, Mustafa Abdul Jalil, the head of the NTC, declared that going forward Libya's banks would begin offering Shariah compliant financial services. This announcement, made to the crowds in Kesh Square in Benghazi, has now been followed by concrete steps; in particular, the Central Bank of Libya (CBL) obtained approval from the NTC to promulgate Law No. 46 of 2012, which formally introduces Islamic banking and finance to Libya for the first time.

The introduction and development of an Islamic banking and finance market took another major step forward on 7 January 2013 when the General National Congress (GNC) promulgated Decree No. 1 of 2013, banning the charging of interest on loans granted to individuals. At the same time, it was further announced by the GNC that the same principles will start to apply to corporate loans from 1 January 2015. Additionally, under this law, a special fund was established to provide interest free loans. This fund is to be under the supervision of the CBL.

This is an extract from the article 'Libya regulation of the financial services sector'. For the full version of this article please see our website.

Libya: FDI/foreign ownership rules

Adrian Creed, Partner, Abu Dhabi

The current foreign investment laws

Although the second anniversary of the February 2011 revolution was recently celebrated in Libya, the momentum for economic reform has largely stalled. This is the result of the introduction of new rules that have significant implications for foreign investors.

The old Libyan regime had been taking steps to improve the investment climate in the country since the early 1990s. In 1997, the Law for Encouragement of Foreign Investment, (commonly known as Law No. 5) was introduced. Under the circumstances, this was a reasonable law, encouraging foreign direct investment (FDI). The legislation detailed the investment procedures, new duties and incentives, including income, import, and capital gains tax concessions. It also allowed foreign investors to own 100% of the company.

In 2006, Decree No. 171 was issued. This law was a significant step forward, making it easier for foreign investors to do business in Libya. It allowed foreign investors to form joint stock companies (JSC) with Libyan shareholders and with a minimum capital of LYD 1 million. It also permitted foreign shareholding of up to 65%, thereby allowing the foreign partners to hold majority control in the entity. Decree No. 171 also states that a minimum of 35% of the capital of the company must be owned by Libyans for the lifetime of the company.

In 2010, Law No. 9 on investment promotion (Investment Law No. 9) came into effect and the Privatisation and Investment Board (PIB) was created. The new law allowed 100% foreign ownership across a wide range of sectors. Companies established under Investment Law No. 9 are also able to benefit from a number of advantages, particularly tax reliefs for investments in specific projects in Libya. Under this law, foreign companies may also have a minimum of two (rather than ten) shareholders. However, the practical effect and application of Investment Law No. 9 remain to be seen as this law was not fully implemented prior to the 2011 revolution.

Since the overthrow of the old regime in 2011, the new Libyan government has issued four ministerial decrees which contain measures affecting FDI in the country.

Under the latest ministerial decrees, foreigners are precluded from establishing a Limited Liability Company (LLC) in Libya. In addition, the Libyan authorities have given a broad interpretation to the current regulations concerning JSCs stating that no one, whether Libyan or foreign entity, or whether a natural person or a company, can have more than a 10% shareholding in a JSC.

Overview of ministerial decrees affecting FDI issued since 2011:

Date of issue

Authority

Key effects

15 January 2013

Decree 22 of 2013

Prohibition on LLCs established by foreigners

5 July 2012

Decree 207 of 2012

Foreign participation in joint ventures companies reduced from 65% to 49% (60% only in exceptional circumstances)

13 May 2012

Decree 103 of 2012

Maximum foreign participation in joint venture companies set at 65%

22 April 2012

Decree 186 - 202

The number of shareholders in a JSC should not be less than 10 persons unless the JSC:

i. is a public company

ii. was established by the resolution of the BoD of the holding company; or

iii. is formed by a contract between two or more JSC companies

Middle East: Saudi Solar/Renewables? – Renewable Energy across the MENA region

Adrian Creed, Partner, Abu DhabiAmir Kordvani, Associate, Abu Dhabi

"If I were you, I would stop trying to make Saudi Arabia the oil capital of the world and make Saudi Arabia the energy capital of the world. You should take your cash right now and go out and buy half the solar capacity in the whole world and you should start at the equator. All the way around the equator and go north and south until you put solar power everywhere the weather will tolerate it. You will save the planet and get richer." Former U.S. President Bill Clinton, 2006

For some time now, governments in the Middle East and North Africa (MENA) region have been under pressure to diversify their energy portfolios by bringing in alternative sources of energy to supplement traditional fossil fuel power. Although renewable energy sources are an obvious means of achieving diversification, to date, the adoption of renewable energy across the MENA region has been slow.

Reasons for this lack of progress include: lack of fair and reasonable feed-in tariffs for renewable energy sources; government subsidies on fossil fuel resources creating barriers to entry; in places, a lack of necessary external investment in the sector; and a lack of urgency and impetus to implement the energy diversification programs.

However, recent policy announcements by a number of governments across the MENA region suggest a new approach: renewable energy, and clean, efficient technologies, will be a major part of a more diversified energy portfolio in the changing landscape of energy in the region.

There are a range of key motivators, as we see them, behind this shift in government policy. Within this article we examine key jurisdictions within the region and look at how governments are seeking to effectively embrace a meaningful approach to renewable energy and resource diversity.

This is an extract from the article 'Renewable energy across the MENA region'. For the full version of this article please see our website.Recent developments in Tanzania – PPP Operational Guidelines for mainland Tanzania

Peter Kasanda, Legal Director, Dar es Salaam

In the first edition of this newsletter published in Autumn 2012 we reported on the legal framework for Public Private Partnerships (PPP) in Tanzania, specifically: (i) the Public Private Partnership Act, 2010 (No. 18) of July 2010 (PPP Act); and (ii) the Public Private Partnership Regulations 2011 (the Regulations), together the Framework.

The previous article focused on the Framework and can be viewed on our website.

This update focuses on the PPP Operational Guidelines for mainland Tanzania dated October 2012 (the Guidelines).

The Guidelines provide detailed information regarding the implementation of PPP projects, essentially the implementation tool of the Framework. However, it should be noted that the Guidelines are yet to be approved by the Prime Minister's office in Tanzania which has initial policy oversight of the Framework.

The Guidelines provide the following information:

Overview of the PPP project cycle

The various phases can be summarised as:

(a) Initial project selection

The minister responsible for investment establishes a list of potential PPP projects

(b) Pre-feasibility study

The Contracting Authority (CA) undertakes a pre-feasibility study to include financial analysis and local issues

(c) Commissioning of a feasibility study by CA

A study intended to provide an extensive appraisal of the needs of the locality, financial benefits and likelihood of resistance from local population

(d) Final approval

Approval is sought by the PPP Coordination Unit (PPCU), PPP Finance Unit (PPFU) and Ministry of Finance (MoF)

(e) Procurement and Award of Contract

CA commence and conduct procurement (using international best practice and standards) and the contract is then signed

(f) Implementation

CA undertakes / provides a contract management function throughout the life of the contract

Unsolicited proposals

The different types of unsolicited proposals that exist under the Guidelines and which are open to the CA are set below:

Negotiation and contracting without negotiation

Negotiations are started with the submitter of the unsolicited proposal in order to conclude the PPP agreement

Swiss Challenge

An open tender process is conducted in which the submitter of the unsolicited proposal has the right to match the winning bid in order to win the contract

Bonus

An open tender process is conducted. In the evaluation of bids the submitter of the unsolicited of the unsolicited proposal received a bonus (generally 7-10% of points) giving an advantage over other bids

Development fee

The procuring authority pays a fee to the submitter of the unsolicited proposal to acquire the development rights of the project. An open tender process is then conducted in which the submitter of the unsolicited proposal competes on equal terms with the other bidders

Automatic acceptance to BAFO stage

This option applies to multi-stage procurement. The submitter of the unsolicited proposal does not have to pass the preliminary stages of the procedure and is automatically invited to the last stage in which the remaining bidders submit their best and final offer (BAFO). This option can be combined with an evaluation bonus for the submitter of the unsolicited proposal.

Edward Freeman, Senior Associate, London

When an organisation or individual is looking to undertake work in a territory other than its home market it should ensure that it is fully aware of the practical considerations arising due to the location of the project.

Market standards

Parties need to be aware that positions or behaviour considered as market standard in their domestic market may be different in other jurisdictions:

Contracting conventions

There may be significant differences in contracting practice resulting from a contrast in approach between different legal systems. For example, contracts in civil code jurisdictions are often shorter than those in common law jurisdictions. The civil code will impose key provisions on the contracting parties and there is a corresponding reduction in the number of express terms the contract needs to contain. Common law concepts such as liquidated damages for delay may not be recognised, or their use may be restricted, in other jurisdictions, particularly civil code jurisdictions. Furthermore, parties may find that negotiating practices differ significantly – high pressure tactics may only cause offence in some locations, as may fielding negotiators of unequal seniority.

Balance of power and negotiating style

Different levels of power, or difference in typical negotiating positions, may occur between different locations. For example, state entities may have an extremely strong and intractable negotiating position or there may be significant differences in the normal approach to limitation of liability.

Local business ethics

Parties need to understand if the prevailing culture results in local business ethics and they should be sensitive to these. Given the extraterritorial nature of anti-bribery and money laundering legislation such as the Bribery Act, parties will need to have strong procedures in place to ensure compliance with applicable laws and procedures, and therefore may need to consider carefully the risks of contracting in some locations.

Language implications

It is important not to underestimate the effect of the negotiating parties having different native languages. Even if a common language is theoretically able to be used, a desire to save face may result in negotiators failing to indicate that their understanding is not complete, and nuances might be lost in translation. The official language of the contract will need to be decided upon. Even if English is chosen, this ultimately may not be the working language for the project. Therefore, not only will translations need to be provided for project management purposes but if there is a dispute, both records and witnesses may operate in different languages, adding considerably to costs and complexity.

Standard form contract

Every construction and engineering contact will have to address issues which are particular to the specific project it relates to. However, a number of core provisions will need to be addressed in most construction and engineering contracts. As a result, professional institutions and trade and industry bodies have historically produced standard form contracts to protect the interests of their members. This is especially the case in common law jurisdictions such as England and Wales.

Risk allocation

Although the UK has a longer history of using standard forms than most, standard form contracts are now used in a number of countries. Certain internationally recognised standard forms are regularly used in a wide variety of jurisdictions.

The purpose of a standard form contract is to provide a template contract which standardises risk allocation between the contracting parties, and which can be adapted for use anywhere. The intention is to create greater parity between the negotiating parties by ensuring that they understand their obligations under a contract, by virtue of being familiar with the form of contract being used.The main standard forms are available as suites or families of contracts, due to the recognition that risk allocation will vary depending on the type of project, the procurement methods adopted and perhaps the parties. For example, if the employer is undertaking the design of the works which are the subject of the contract this will require a different form than that required where the contractor is both designing and building the works.

Due to the increasingly international nature of contracting, the divide between international and domestic standard forms is becoming blurred. For example, some formerly international standard forms, such as FIDIC, are now being used in the UK and some UK domestic standard forms, such as NEC, are being used internationally with increasing frequency.

Standard forms do however have their limitations, not least that they attempt to balance suitability across a range of projects with relative simplicity and brevity. Domestic contracts may include a layer of complexity derived from local legislation, which becomes irrelevant in an international context.

Bespoke Terms & Conditions

Often legal advisors consider that the facts, structures and complexities of projects, and the clients' needs in respect of them, require terms and conditions that would require substantial re-writing were a standard form to be used. In these circumstances, the client may feel that it is worth producing a bespoke contract to be drafted to suit the individual project. This may particularly be the case where a project is to be project financed, and therefore requires a flow-down of specific items from a project agreement and/ or a substantial re-balancing of risk allocation.

Parties or law firms that engage in particularly complex or specialist areas may have their own specific bespoke forms for particular types of project which can then be tailored to particular jurisdictions. The size and complexity of international projects, together with the fact that some jurisdictions do not use standard forms widely, is likely to mean that parties will encounter bespoke contracts more frequently when contracting internationally.

Governing law

The law governing the contract will affect how the contract is interpreted, and parties to a contract should therefore clearly identify the governing law of contract. Failure to do so could lead to disputes as to which law applies (especially in cross border transactions with parties of different jurisdictions). This could result in a shift in the interpretation of the contract and possibly the risk allocation.

In some jurisdictions, there will be little room for negotiation in relation to which law should apply. When considering the law which should apply to the contract, how developed a country's legal system is and the ease of enforceability of a party's rights will be key factors to take into account. If the project requires external financing of that project, the lenders may prescribe what law should apply to the contract to ensure that they are comfortable with the risk matrix.

Although the contract may specify a particular governing law, parties should consider the interaction of the domestic law and the named law and the possibility of conflict between the different laws.

Laws applying from other jurisdictions

Parties should also consider laws applying from other jurisdictions. The most common are ones relating to corruption and bribery, such as the Bribery Act (England and Wales) and Foreign Corrupt Practices Act (USA). These cannot be contracted out of so are highly significant to a contractor considering work in a territory other than its home market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.