The Construction & Engineering related disputes are in rise
in Bangladesh. As per a recent Survey, clients, contractors and
consultants found that 30% of the construction contracts signed is
going into dispute in the past 12 months. More than 8 out of 10
disputes arose between the client (owner) and main contractor with
the assessment of delay, extension of time and contract variations
cited as the primary causes of contention.
Construction & Engineering related disputes can be
categorized in 2 categories, (i) Public Projects & (ii)
In Public Projects, contract is awarded by way of rigorous
competitive tendering process due to presence of Public Funds. On
the other hand, Commercial Projects may not involve competitive
tendering process. Contractor may be selected informally based on
negotiation. In both type of projects there is inevitably a main
contract between owner and contractor. Besides, there may or may
not be several other contracts with Banks, Insurance, Architect,
Engineer, Sub-contractor etc. In major Construction &
Engineering contracts the Contractor may appoint Engineering
Company for engineering, procurement & commission (EPC) for
completion of actual construction work while the contractor remains
in charge of the overall project, success or failure.
Similarly, after commissioning the main contractor/owner may
also sign sub-contract with another engineering company for
operation & maintenance (O & M) of the project. Again, the
main contractor/owner remains responsible for the success or
The Disputes are increasing for several reasons which are
described as follows:
Tendency to avoid Due
Diligence including Legal Due Diligence before signing
contract is a very common. This is because the parties have the
tendency to save time and cost, which is very negligible compared
to the overall cost of the project, at the early stages of the
project. Legal Due Diligence actually helps the parties involved in
assessing their risk, cost, time etc.
Drafting of contract without
the help of legal advisor and/or using bespoke contracts
which may not be suitable for the project from legal point of view.
Such contracts may lead to several confusions, misunderstanding,
conflicting outcome etc which may ultimately results in disputes
between the parties involved.
Due to lack of knowledge and
ignorance of the parties the contract may not contain
suitable dispute resolution clause. Depending on the nature of the
contracts, parties involved, cross-border transactions, location of
parties etc international arbitration, local arbitration,
institutional arbitration, mediation, mutual consultation, and
finally litigation may be suitable. Hence, it is important that the
parties agree to an appropriate Dispute Resolution clause.
In major construction projects e.g. Power Project, there may be
more than one agreement e.g. Power Purchasing Agreement (PPA), Gas
Supply Agreement (GSA), Land Lease Agreement (LLA) etc. which are
prepared in standard form and are found in the tender documents.
However, tailor-made clauses suitable for the project are always
required. This can be achieved and further negotiated in pre-bid
Similarly in Ship construction contracts, complex agreements are
often required involving performance guarantees, refund guarantees
and also payment by installment which surely has implications of
local and international laws.
Accordingly, owner, contractor, sub-contractor, EPC and O&M
companies, architects, engineers etc. for their own interest may
allocate time and resources for Legal Due Diligence to avoid
disputes which may lead to complex lengthy litigations etc.
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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