2 February 2023

International Construction Projects - Ensuring Your International Investment Is Worthwhile

Barton Legal


Barton Legal Limited are specialists in construction and commercial property law, with a strong international presence. We have extensive experience and expertise in the full range of standard form contracts such as JCT, NEC, ICE, FIDIC and IChemE, and we act variously for employers, contractors and sub-contractors.
If you ever visit a new place, you will want to ensure you are well prepared. This may include rote learning how to say 'hello' in the local language, taking plenty of suncream and looking up...
UK Real Estate and Construction
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If you ever visit a new place, you will want to ensure you are well prepared. This may include rote learning how to say 'hello' in the local language, taking plenty of suncream and looking up the best local bar and/or restaurant for a truly authentic experience.

But what about a construction project? How do you ensure a project, which (for example) may take place in East Africa, with investors from China, consultants from Europe, and contractors from the local region, runs effectively?

Like your trip abroad, you need to research the specific country and its requirements. You need to understand the legislation in the particular country and how it may affect your project; you may need to amend a standard form contract to ensure it takes into account local legislation and bylaws. Depending on who is developing the project, you may need to change how you tender the project (e.g., a public project may require you to carry out a public or selective tender, etc.). It is essential to make sure you know about the requirements of the specific country you intend to work in. It is sensible to discuss these issues with a local project management firm before you set up the project.

You should also consider what the blueprint for success is from other projects which have been carried out in that area. Elizabeth Natukunda, in the Barton Legal webinar 'International Projects - A Road Map to Success', explains that many projects in East Africa are made up of joint ventures, between foreign and local companies. This allows the parties to draw on the knowledge of the local construction environment from the local company and the other skills and expertise the foreign company can bring to the project.

It is important that all parties to the project understand how the project will be implemented. This will include having pre-contract meeting(s) with the Contractor, Developer, Contract Administrator and other third parties to ensure everyone understands how long the project should last, how to apply for payment, how to apply for extra time and cost (and reasons for applying). You should consider whether you should get the parties to sign the meeting minutes, to confirm understanding amongst the parties. This will mitigate the chance of disputes arising, as all the parties will have discussed the contract provisions (instead of just reading them in their own time).

You should consider how the Contractor is incentivised to progress the project regularly and diligently? There are a few ways this can be done. This includes using delay/liquidated damages clauses in the contract; retaining a certain amount (at least 5%) of each amount which may be due from every payment application until completion; and ensuring the Contractor provides a performance bond and/or guarantee, meaning the Contractor (or the guarantor) is liable to pay an amount if it does not complete the works in a timely manner.

You need to be conscious of what may cause delay. This may include the ground and environmental conditions; you must ensure you understand what the ground and other environmental conditions may be which could cause delay and how to mitigate these issues. For example, if the country you are working in is known to have monsoon, hurricane or other serious weather events, then you should determine how this may delay the project programme before work starts. Other issues may include local relations; for example, if the country you are working in has a controversial leader and you are intending to work during an election year, then there may be delays caused by the lead up to (and fall out from) the election. This will also include issues that may be particular to that region; are there any materials which the countries around that area produce, and has there been an issue around supply recently?

If a dispute does arise, then you need to have dispute resolution procedures which deal with the dispute in a timely fashion without affecting the project. Large projects should consider using a dispute avoidance board, which would be utilised in order to determine disputes over payment applications, and claims for extra time and cost during the project. The board must be obliged to try and resolve the dispute as quickly as practicable, without jeopardising the ability of the board to make an informed decision. The Contract should also include provisions which allow the parties to issue further proceedings (which may include adjudication, arbitration and Court proceedings) if the dispute avoidance board cannot resolve the dispute. The Contract should oblige the parties to try and use the board first, before issuing further proceedings.

In summary, like going on a trip abroad, no project (especially ones in a country you have not worked in before) is risk free. You should ensure you mitigate the chances of disputes arising. The key to doing this is to ensure you plan thoroughly before you start the project; this should include using professional and legal advisers to create project programmes, bills of quantities and contracts which are suitable for the area and region. You must also ensure all the parties properly understand the plans and contracts which have been set up and that they adhere to these whilst they progress the project.

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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