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General Issues in International Construction.

Summary:1 International Performance Characteristics (lecture 19 and Appendix 7).

2 International Contracts and Payments (lecture 20).

3 International Disputes and Arbitration (lectures 21 & 22).

4 Boycotts and Bribes (lecture 24).

5 Selecting Consultants, Engineers and CMs (lecture 25).

6 Examples from the Near East, N Africa, and Developing Nations (lectures 26, 27, & 28).

7 FIDIC (lectures 29 & 30).

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1 International Performance Characteristics.

• Performance standards in international construction can vary significantly from the domestic scene:– timely completion of work (quite similar to domestic):

• contractor can be excused in certain circumstances:– force majeure - particularly relevant to the international international scene, and includes factors beyond control such as:

• war and new import/export restrictions;• but also earthquakes, floods, riots, etc..;

• foreign governments and employers often require greater assurance that the international contractor has the necessary expertise and financial support:

– due to less knowledge of the contractor;– reduced ability to sue the contractor in the event of total default;

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– quality expectations of owners may be different internationally:• lower in many developing countries:

– however, often international contracts are large, prestigious facilities where quality must meet the highest international standards;

• ISO 9000 (International Standards Organization):– aimed at providing a quality system that helps ensure a product that meets the purchasers requirements;– increasingly adopted in industry (but still minimal in construction);– see Appendix 7 for overview of this standard.

– safety standards may be different:• may be stricter or less strict than US, however:

– must meet legal requirements (make sure you understand your obligations, relevant agencies, actions to take in case of accidents);– humanitarian, moral, ethical obligations;– economic issues (reduced premium if good safety record);

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2 International Contracts and Payments.

• Documentary payments:– An added dimension in international contracts is:

• buyer wants to receive goods and services before payment (large delivery lag times, greater probability of damage..);

• the seller would like payment before it hands over the product:– a solution to this dilemma is to operate payments through an international bank system:

• a common form of this is the Documentary Credit System:

• an international bank (issuing agent) is used for this purpose;

buyer inform bankof payment

issuingbank

produce documentaryevidence of existenceand shipment of goods

sellerpayment

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3 International Disputes and Arbitration.

• Disputes are commonplace in construction contracts:– for international contracts:

• greater risk and more uncertainty = greater possibility of disputes;

• as a foreign contractor, often less likely to get a fair judgement in local courts;

• legal process likely to be unfamiliar = disadvantage.

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• Litigation can be:– expensive;– cause delays;– lead to a poor working relationship;– the foreign contractor is often at a disadvantage.

• therefore, try to avoid litigation:– negotiation is the best approach if an amicable solution can be achieved in a reasonable period of time;– placing an engineer between the contractor and owner can facilitate the negotiation;– the next level of recourse is conciliation - introduction of a third independent party (in place of the engineer)

• can suggest, but not compel the terms of a settlement;

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– the next level of recourse may be arbitration:• provides an impartial forum (equality for both parties);• its independent of the jurisdiction of a foreign legal system;• often faster than referring to the judicial process.

– FIDIC contracts provide for dispute resolution through arbitration via the ICC Court (International Chamber of Commerce):• consequently, 20-25 % of the 300 cases started annually are construction cases;• however, the local arbitral center may not accommodate the use of the ICC rules.

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4 Boycotts and Bribes.

• Boycotts:– a technique whereby one state attempts to exert economic pressure on another to achieve some

desired political end:• primary boycotts: country X refuses to do business with country Y;• secondary boycotts: country X refuses to do business with companies in country Z that do business with

country Y.

– beware, this can impact your companies ability to secure future contracts;

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• Bribes:– most countries criminalize bribery:

• yet, in some countries, it may be accepted as a way of doing business, and rife even at the government level;• differentiate from legitimate agency/commission fees paid to bona-fide person for rendering services necessary to do

business in a foreign country;• keep thorough records of all financial transactions in case you are audited;• penalties can be severe, with heavy fines and years of imprisonment;• depending on the current political environment, you could find yourself being made an example.

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Required General Reading:

• Chapter 27: Construction in Kuwait.

• Chapter 28: Contract Arrangements in Developing Nations

• Chapters 29 & 30: FIDIC Clauses