International Construction Contract Law

About the Author xxiii

Foreword xxv
Svend Poulsen

Acknowledgments xxvii

Introductory Remarks xxix
ShuiboZhang

Introductory Remarks xxxi
Robert Werth

Introductory Remarks xxxiii
Ilya Nikiforov

1 International Construction Projects 1

1.1 The unique nature of the construction industry 1

1.2 Individuality of construction projects 1

1.3 Roles and relationships 2

1.4 Contract administration 4

In-Text Vignette: Engineer’s power to re-rate due to substantial increase in BoQ quantities by Albert Yeu (Hong Kong) 10

1.5 Further important aspects of construction projects 11

1.6 Typical contractual relationships 12

In-Text Vignette: Shipping and marine construction contracts in Asia by Knut Kirkhus (Oman)12

1.7 Motivation for international business 15

In-Text Vignette: The Italian construction industry: Between past and future by SDG & Partners (Italy) 17

1.8 Managerial analysis 20

1.9 Hazards and risks 21

1.10 Hazard identification 21

1.11 Risk analysis 22

1.12 Anti-risk measures 22

1.13 Typical hazards in the international construction business 23

In-Text Vignette: Corruption on Peruvian gas pipeline contract by Enrique Moncada Alcantara (Peru) 24

In-Text Vignette: Anticorruption and construction contract law by Enrique Moncada Alcantara (Peru) 27

In-Text Vignette: Indian law by C.K. Nandakumar and Rishabh Raheja (India) 33

1.14 Risk allocation in contracts 35

In-Text Vignette: Wrongforms of contract by James Bremen (UK) 36

In-Text Vignette: The importance of early analysis of risk, knowledge of efficient risk allocation and right choice of delivery method by Conor Mooney (France) 36

1.15 Form of Business Organization 42

In-Text Vignette: To deal with subcontracts in international construction projects by Giuseppe Broccoli and Fabio Zanchi (Italy) 42

In-Text Vignette: Interface agreements between subcontractors by Bernd Ehle and Sam Moss (Switzerland) 48

2 Civil Law and Common Law 55

2.1 Specifics of the governing law 55

2.2 Common law versus civil law: Differences and interconnections  55

In-Text Vignette: The common law of Australia and the influence of statutory law by Donald Charrett (Australia) 57

2.3 Delay damages (liquidated damages) versus contractual penalty 59

In-Text Vignette: The use of liquidated damages in construction projects by Rob Horne (UK) 60

In-Text Vignette: Penalty clauses and liquidated damages under Brazilian law by Thiago Fernandes Moreira and Caio Gabra (Brazil) 72

2.4 Substantial completion versus performance 76

2.5 Binding nature of adjudication awards 78

2.6 Limitation of liability 79

2.7 Lapse of claim due to its late notification (time bars) 79

2.8 Allocation of unforeseeable and uncontrollable risk to the contractor 80

2.9 Contract administration (the Engineer’s neutrality and duty to certify) 90

2.10 Termination in convenience 90

In-Text Vignette: Isan employer in breach of contract prevented from terminating the contract for its convenience? by Cecilia Misu (Germany) 91

2.11 Time-related issues 93

2.12 Quantification of claims 94

2.13 Statutory defects liability 95

2.14 Performance responsibility: Reasonable skill and care versus fitness for purpose 95

2.15 Common law, civil law, and Sharia interconnections 96

In-Text Vignette: Considerations for the construction of offshore oil and gas structures in the Middle East by Faisal Attia and Fernando Ortega (Qatar) 97

3 Common Delivery Methods 102

3.1 Common delivery methods: Main features 102

3.2 General contracting 104

3.3 Design-build 105

In-Text Vignette: Dutch design and construct of infrastructural projects in complex environments by Joost Merema (the Netherlands) 109

In-Text Vignette: Best value in the Netherlands by J.N. (Jaap) de Koning (the Netherlands) 126

In-Text Vignette: Concern over increasing adoption of design build for infrastructure works—JICA funding projects by Takashi Okamoto (Japan) 128

3.4 Construction management 131

In-Text Vignette: Interface management and interface agreements by Zachary Ferreira (the United States) and Alex Blomfield (UK) 132

3.5 Multiple-prime contracts 138

3.6 Partnering 138

In-Text Vignette: Integrated project delivery—“Collaborate rather than litigate” by Edward J. (“Ned”) Parrott (the United States) 139

3.7 Alliancing 140

In-Text Vignette: Targetprice and early risk identification/management: London 2012 Olympics by Klaus Grewe (UK) 140

3.8 Extended delivery methods (PPP, BOT, DBO) 143
In-Text Vignette: Public-private partnerships by Steven Van Garsse (Belgium) 144

In-Text Vignette: Infrastructure through public-private partnerships in the Philippines by Aris L. Gulapa and

Dan Kevin C. Mandocdoc (the Phillipines) 146

3.9 Further aspects of delivery methods 153

In-Text Vignette: BIM—The way forward? by Christopher Miers (UK) 156

In-Text Vignette: Developments in BIM application: Legal aspects by Joost Merema (the Netherlands) 159

In-Text Vignette: BIM: A superior approach for infrastructure construction by Josef ak (the Czech Republic) 166

4 Specifics of EPC and EPCM 172

4.1 EPC and EPCM 172

4.2 Engineer procure construct (EPC) 172

In-Text Vignette: The employer’s pitfall in the use of FIDIC conditions of contract for the EPC/turnkey projects (Silver book) in Indonesia by Sarwono Hardjomuljadi (Indonesia) 175

4.3 Bespoke EPC contracts 177

In-Text Vignette: Mitigating the risk of delays in power plant projects: An EPC contractor’s view on different contractual concepts by Jacob C. Jorgensen (Denmark) 178

4.4 Turnkey EPC contracts 185

In-Text Vignette: Water treatment wind farm, and road construction projects in Asian and African countries by Stephane Giraud (France) 186

4.5 Front end engineering design 188

In-Text Vignette: Key issues in the procurement of international hydropower construction contracts by Alex Blomfield (UK) 189

4.6 Engineer procure construction management (EPCM) 192

In-Text Vignette: The use of the EPCM delivery method in the mining industry by Mark Berry (UK) and Matthew Hardwick (UK) 195

4.7 EPC versus EPCM 200

In-Text Vignette: Offshore construction by Fernando Ortega (Qatar) 202
5 Unification and Standardization in International Construction 215

5.1 Unification of contracts 215

5.2 Unification per law, principles, and sample documents 215

In-Text Vignette: Resolving construction claims under investment treaty arbitration by Fernando Ortega (Qatar) 218

5.3 Lenders and their influence on unification 220

5.4 Standard form of contract in a governing law context 222

5.5 Purpose of sample documents in construction projects 222

5.6 Standard sample forms as a source of law 224

5.7 Lex causae 224

5.8 Interpretation 225

In-Text Vignette: Inconsistency in contract documents by Patrick Kain (South Africa) 226

5.9 Trade usage and business custom 229

In-Text Vignette: A common law of construction contracts—or Vive La difference? by Donald Charrett (Australia) 230

5.10 Lex constructionis principles 232

In-Text Vignette: Contractor’s duty to mitigate delay and damages under FIDIC 1999 standard forms and in lex mercatoria by Vladimir Vencl (Serbia) 234

5.11 The use of lex constructionis 240

In-Text Vignette: Future-proofing construction contracts by Shy Jackson (UK) 240

6 Price 244

6.1 Contract price 244

In-Text Vignette: International construction measurement standards: Global consistency in cost analysis by Simon Collard (United Arab Emirates) 245

6.2 Bid pricing methods 247

6.3 Methods of contract price determination 248

6.4 Re-measurement 249

6.5 The lump sum 252

6.6 Cost plus 252

6.7 Guaranteed maximum price 253

6.8 Target price 253

6.9 Payment 254

In-Text Vignette: Taxation in international construction contracts by Alex Blomfield (UK) 255

In-Text Vignette: Managing the risk of non-payment by Sean Sullivan Gibbs (UK) 257

6.10 Contract price under FIDIC forms 261

6.11 Cost overruns 263

6.12 Abnormally low tender (ALT) 264

In-Text Vignette: Best value approach in the Netherlands by Wiebe Witteveen (the Netherlands) 265

6.13 Claims as part of contract price 273

6.14 Public procurement law limitations 273

In-Text Vignette: A concept of variation in a construction contract under Polish public procurement by Micha? Skorupski (Poland) 275

7 Time 280

7.1 Time in construction 280

7.2 Delay 280

7.3 The United Kingdom Society of construction law delay and disruption protocol 282

7.4 Time program 283

7.5 Ownership of floats 285

In-Text Vignette: Time extension and float ownership under the FIDIC Red and Yellow Books (1999) by Frank Thomas (France) 285

7.6 Time at large and extension of time (EOT) 298

7.7 Concurrent delay 300

In-Text Vignette: Delay clauses in different jurisdictions by Jacob C. Jorgensen (Denmark) 301

7.8 Disruption 302

7.9 Time for completion under FIDIC forms 303

7.10 Time program under FIDIC forms 304

In-Text Vignette: A lack of realism in negotiations by James Bremen (UK) 306

7.11 Delay and suspension under FIDIC forms 306

7.12 Contract termination under FIDIC forms 309

8 Variations 313

8.1 Variation clauses 313

8.2 Variations under FIDIC forms 315

In-Text Vignette: Sub-Clause 13.2 value engineering under the FIDIC forms by Manuel Conthe (Spain) 316

8.3 Claims related to variations 319

In-Text Vignette: The nightmare of valuing omissions by Aymen K. Masadeh and Remon Farag (UAE) 321

8.4 Acceleration 329

In-Text Vignette: Drafting acceleration agreements by Alan Whaley (UK) 333

In-Text Vignette: The U.S. approach to constructive acceleration by Robert A. Rubin and Sarah Biser (the United States) 336

In-Text Vignette: Constructive acceleration claims: A common law perspective by Alan Whaley (UK) 339

8.5 Proving the acceleration claim 340

8.6 Substantial change 342

In-Text Vignette: Modification of contracts during their execution under EU law by Odysseas P. Michaelides (Cyprus) 343

In-Text Vignette: ITER—An International project for the construction of a first-of-a-kind fusion nuclear installation under the FIDIC forms by Karoly Tamas Olajos (France) 347

9 Claims 364

9.1 Claims 364

In-Text Vignette: Claims caused by deficiencies in tender documents by James Bremen (UK) 368

9.2 Contractor’s claims under FIDIC forms 368

9.3 Employer’s claims under FIDIC forms 369

In-Text Vignette: Employer’s notices by Victoria Tyson (UK) 369

In-Text Vignette: Claims in the St. Petersburg flood protection barrier construction by Aleksei Kuzmin (Russia) 373

9.4 Lapse of claim 377

9.5 Cause of the claim 378

9.6 Limits of the lapse of claim 379

In-Text Vignette: Construction claims in the UK by Garry Kitt (UK) 381

In-Text Vignette: Condition precedent and time-barred claims under Polish law by Micha? Skorupski (Poland) 383

In-Text Vignette: Australian position on time bars by Andrew P. Downie (Australia) 385

In-Text Vignette: Timebars under Kuwaiti law by Dina Al Ansary (Kuwait) 392

10 Claim Management 395

10.1 Claim management 395

10.2 Claims for extension of time (EOT) 396

10.3 Claims for additional payment 398

10.4 Claims resulting from delay and/or disruption under the provisions of the contract 399

In-Text Vignette: Considerations related to site overhead claims by Gary Kitt (UK) 400

In-Text Vignette: Head office overhead claims under FDIC contracts by Alan Whaley (UK) 410

In-Text Vignette: Calculation and recovery of home/head office overhead in North America by James G. Zack (the United States) 412

10.5 Claims resulting from governing law 424

10.6 Global claims 425

In-Text Vignette: All global claims are not negatively “global”! by Frank Thomas (France) 428

10.7 Contractor’s claim management under FIDIC forms 429

10.8 Employer’s claim management under FIDIC forms 431

10.9 Intercultural aspects 432

In-Text Vignette: “Claim” as perceived in the Polish civil law environment by Micha? Skorupski (Poland) 434

10.10 Claim management implementation 436

In-Text Vignette: Claims in a tunnel construction in the Republic of Serbia by Radim Wrana (the Czech Republic) 437

In-Text Vignette: The evolution of contractor’s claims in Peru/South America by Jerry Pessah (Peru) 438

11 Construction Dispute Boards 442

11.1 Construction disputes 442

In-Text Vignette: Construction dispute in sheet metal galvanizing line project by Patrick Kain (South Africa) 442

11.2 Dispute boards 444

In-Text Vignette: Project dispute avoidance by Christopher J. Mather (the United States) 445

In-Text Vignette: Dispute resolution boards: The long-term experience from the United States by Robert A. Rubin (the United States) 451

11.3 Contractual adjudication: The use of DAB in FIDIC forms 454

In-Text Vignette: Construction disputes in Ukraine by Roger Ribeiro and Yaryna Bakhovska (Ukraine) 457

11.4 Enforcement of dispute board decisions 464

In-Text Vignette: The Persero proceedings and the issue of the enforcement of a non-final DAB decision under the FIDIC conditions by David Brown (UK) 469

11.5 Statutory adjudication 471

In-Text Vignette: Statutory adjudication by Nigel Grout (UK) 471

In-Text Vignette: Settling construction disputes in Hungary by Tamas Balazs (Hungary) 474

In-Text Vignette: Statutory adjudication in Australia by Donald Charrett (Australia) 475

In-Text Vignette: Statutory adjudication in Malaysia by Albert Yeu (Hong Kong) 481

12 FIDIC 485

12.1 FIDIC expansion 485

In-Text Vignette: Using translated texts in FIDIC contracts: The Spanish case by Ignacio de Almagro (Spain) 485

12.2 FIDIC 487

12.3 FIDIC’s influence on the construction industry 488

12.4 FIDIC membership 488

12.5 Networking activities 489

In-Text Vignette: The use of FIDIC forms in Russia by Dmitry Nekrestyanov (Russia) 492

In-Text Vignette: The use of FIDIC forms in Brazil by Rafael Marinangelo (Brazil) 493

In-Text Vignette: The use of FIDIC Forms within the construction contract law of Turkey by Yasemin Çetinel

(Turkey) 493

In-Text Vignette: The use of FIDIC forms in Azerbaijan by Farid Nabili (Azerbaijan) 502

In-Text Vignette: The use of FIDIC forms in Nigeria by Marc J. Enenkel (Germany) 505

In-Text Vignette: The use of FIDIC forms in Ukraine by Svitlana Teush (Ukraine) 507

In-Text Vignette: The use of FIDIC forms in Vietnam by David Lockwood (Vietnam) 513

In-Text Vignette: The use of FIDIC forms in Kazakhstan by Artyushenko Andrey (Kazakhstan) 517

12.6 FIDIC forms of contract 522

In-Text Vignette: Journey to the “kitchen” of FIDIC: How FIDIC publications are produced by Husni Madi (Jordan) 524

12.7 The structure of the contract under FIDIC forms 527

12.8 Conditions of contract for construction (CONS)—1999 Red Book 530

In-Text Vignette: Misapplications of FIDIC contracts in the United Arab Emirates by Kamal Adnan Malas (United Arab Emirates) 531

12.9 Conditions of contract for plant and design-build (P&DB)—1999 Yellow Book 535

12.10 Conditions of contract for EPC/Turnkey projects (EPC)—1999 Silver Book 536

12.11 Short form of contract—Green Book 537

12.12 Construction subcontract 537

12.13 Conditions of contract for design, build, and operate (DBO)—Gold Book 538

In-Text Vignette: The 2017 updates of the 1999 FIDIC forms of contracts (Red, Yellow, and Silver Books) by Zoltan Zahonyi (Hungary) 541

12.14 Other FIDIC standard forms 547

In-Text Vignette: FIDIC suite of consultant agreements by Vincent Leloup (France) 547

In-Text Vignette: The use of FIDIC contracts by the mining industry in Africa by Coenraad Snyman (South Africa) 551

12.15 Risk allocation under FIDIC forms 553

In-Text Vignette: China’s standard form of construction contract in comparison with FIDIC forms by Shuibo Zhang (China) 556

In-Text Vignette: Explanation of FIDIC EPC risk allocation by FIDIC 561

In-Text Vignette: The FIDIC golden principles—A new approach to discouraging inappropriate amendments to standard form contracts by Donald Charrett (Australia) 563

12.16 Design responsibility under FIDIC forms 566

In-Text Vignette: Design Liability: risk share, conflicts and a little bit of common sense? by Cecilia Misu (Germany) 568

13 Other Standard Forms of Construction Contracts: NEC, ICC, ENNA, IChemE, Orgalime, AIA, VOB 580

13.1 Common standard forms of construction contracts 580

13.2 The NEC (New Engineering Contract) 580

In-Text Vignette: The NEC form of contract—ready for the international market by Rob Horne (UK) 585

13.3 FIDIC forms versus NEC3 594

13.4 ICC forms of contract 597

13.5 ENAA forms of contract 597

13.6 IChemE forms of contract 598

13.7 Orgalime forms of contract 599

13.8 Standard forms of construction contracts in the Czech Republic 600

In-Text Vignette: United States standard form contracts by Edward J. (“Ned”) Parrott (the United States) 602

13.9 VOB: German standard 607

13.10 Invalid clauses in German case law 613

In-Text Vignette: The standard forms of construction contract in Australia by John Sharkey (Australia) 614

In-Text Vignette: Construction contracts in the Republic of Ireland by Arran Dowling-Hussey (Ireland) 617

14 Risk and Insurance 623

14.1 Insurance in construction 623

14.2 Commercial risk, risk of damage, and exceptional risk 624

In-Text Vignette: Weather risk in offshore wind construction contracts by Alex Blomfield (UK) 627

14.3 Risk management in the standard forms of contract 630

14.4 Hazards and risks in construction projects 632

In-Text Vignette: The difficulties connected to construction risk quantification by Dejan Makovšek(France) 635

14.5 Insurance requirements in standard forms of contract 640

In-Text Vignette: Professional indemnity insurance under the FIDIC yellow book by Richard Krammer (Austria) 642

In-Text Vignette: Insurance in hydropower projects by Alex Blomfield (UK) 651

14.6 Practical aspects of insurance in construction projects 652

In-Text Vignette: Incompatibility of the construction contract with the insurance contract by Karel Fabich (the Czech Republic) 655

14.7 International insurance law and insurance standards in the construction industry 655

In-Text Vignette: Construction/erection all risk insurance in the offshore wind industry by Gregory Efthimiu (Germany) 658

15 Risk in Underground Construction 664

15.1 Underground construction hazards and risks 664

15.2 Code of practice for risk management of tunnel works 665

15.3 Alternatives of unforeseeable physical conditions risk allocation 667

In-Text Vignette: Geotechnical baseline reports as a risk management tool by Randall J. Essex (the United States) 668

In-Text Vignette: Geotechnical baseline used in contractor’s bid by Michal Uhrin (the Czech Republic) 679

15.4 Unforeseeability 684

15.5 “Unforeseeability” according to FIDIC forms 684

15.6 Site data 686

In-Text Vignette: Water-related construction projects by Robert Werth(Germany) 689

15.7 Sufficiency of the accepted contract amount 691

15.8 Unforeseeable physical conditions 692

In-Text Vignette: Ground conditions risk in an EPC contract for a gas treatment plant by Cristina Della Moretta (Italy) 693

15.9 Unforeseeable operation of the forces of nature 697

In-Text Vignette: Clairvoyance: A contractor’s duty? by Gustavo Paredes and Katherine Waidhofer (Peru) 697

15.10 Force majeure 700

15.11 Release from performance under law 701

16 Securities 703

16.1 Securities in construction 703

16.2 Bank guarantees 704

16.3 Functions and parameters of bank guarantees 704

16.4 Specifics of retention guarantee 706

In-Text Vignette: Performance security and termination payment security in hydropower projects by Alex Blomfield (UK) 708

16.5 Governing law 709

In-Text Vignette: Common law specifics related to securities by Rupert Choat and Aidan Steensma (UK)      710

16.6 ICC rules related to securities 712

16.7 Suretyship 712

16.8 Stand-by letter of credit 713

16.9 Securities under FIDIC forms 714

17 Civil Engineering Works: Infrastructure Construction Projects 716

17.1 Investments in developing countries 716

17.2 The approach to the risk allocation in the United States 717

17.3 The approach to the risk allocation in the United Kingdom 719

In-Text Vignette: Construction of airports by Patrick Kain (South Africa) 720

17.4 The approach to the risk allocation in Central and Eastern Europe 722

In-Text Vignette: The Romanian experience by Claudia Teodorescu (Romania) 725

17.5 The Polish experience 731

In-Text Vignette: FIDIC Forms and contractual relationships in Poland by Aleksandra Marzec (Poland) 731

In-Text Vignette: Market environment prior to and after 2008: The need for change in procurement by Micha? Skorupski (Poland) 734

In-Text Vignette: Claims considerations by Aleksandra Marzec (Poland) 740

In-Text Vignette: Contractor defense measures by Micha? Skorupski (Poland) 745

17.6 The Czech experience 748

In-Text Vignette: Local limits for development: An interview with Shy Jackson (UK) by Lukas Klee (the Czech Republic) 750

18 Building Construction: Health Care Facilities 756

18.1 Health care facility construction project 756

18.2 Pre-design planning phase 756

18.3 Design phase 757

18.4 Basic structure of a hospital 758

18.5 Efficiency and cost effectiveness         758

18.6 Flexibility and expandability 759

18.7 Therapeutic environment 759

18.8 Cleaning and maintenance 759

18.9 Controlled circulation and accessibility 760

18.10 Aesthetics 760

18.11 Health and safety 761

18.12 Use of information technology 761

18.13 Relevant regulations and standards 761

18.14 Health care facility construction project: Suitable delivery method 762

Appendix A: Interactive Exercises 766

A.1 Interactive exercise 1: Delivery method selection 766

A.1.1 Task 766

A.2 Interactive exercise 2: Claim for delayed site handover 767

A.2.1 Task 767

A.2.2 Time schedule (program) 768

A.2.3 Site handover procedure 768

A.2.4 Mobilization  768

A.2.5 Acceleration 768

A.2.6 Claims 768

A.3 Interactive exercise 3: Claim due to suspension of work 769

A.3.1 Task 769

A.3.2 Suspension 769

A.3.3 Mobilization  769

A.3.4 Claims 770

A.4 Interactive exercise 4: Subcontractor claim for contractor delay (lack of cooperation, inadequate on-site coordination and improper, unclear, and delayed instructions) 770

A.4.1 Task 770

A.4.2 Fact 1—Lack of cooperation 771

A.4.3 Fact 2—Inadequate on-site coordination 771

A.4.4 Fact 3—Improper, unclear, and delayed instructions 771

Appendix B: Sample Letters (Examples of Formal Notices) 772

Appendix C: Dictionary of Construction Terms: English, German, French, Hungarian, Czech, Russian, Polish, Spanish, Portuguese and Chinese 791

C.1 Dictionary—General part 792

C.2 Dictionary—Contractor’s claims 800

C.3 Dictionary—Employer’s claims 804

Appendix D: Claim Management System under FIDIC Forms 807

D.1 Claim management team responsibilities 807

D.1.1 E1—Project manager 807

D.1.2 E2—Design and time schedule (program) 808

D.1.3 E3—Site manager 808

D.1.4 E4—Contract interpretation, monthly statements, invoicing, insurance, subcontractors, employer’s claims, mutual claims in a joint venture 809

D.1.5 E5—Administrative support 809

D.2 Claim management processes 810

D.3 Table of contractor’s claims under FIDIC CONS 811

D.4 Table of employer’s claims under FIDIC CONS 811

Appendix E: FIDIC Forms Risk Allocation Charts 813

E.1 Chart No.1: Basic risk allocation alternatives in connection with unforeseeable physical conditions 813

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 813

Index 817