Assignment 4
Read “Global Legal Issues for Engineers and Constructors”, from Yate’s textbook
(attached) and answer the following questions. You may have to do internet search
on some of the topics that have not been explained in detail to answer some of the
questions.
1. Explain why it is easier to prove that an arbitration clause is valid in civil law legal
systems than in common law legal systems.
2. Explain the legal benefits of forming a joint venture -with a Saudi Arabian engineering or
construction company before doing business in Saudi Arabia.
3. Which five clauses from Table 7.1 always should be included in international contracts in
your opinion and why?
4. When E&C personnel are working in foreign countries, which legal system governs their
actions and why?
5. Why was it so difficult for contractors to settle their contractual disputes in Iran after the
Iranian revolution in 1979?
APA format references at the end of assignment
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Chapter 7
Global Legal Issues
for Engineers
and Constructors
7.1 Introduction
The colonization of nations throughout the world created a :~mmon foundation
of legal theories. The affects of colonization still influence c~t1zens of conquered
nations even after they have gained independence from t~eir c~lom~l overseers,
sudden or violent regime changes, terrorist attacks, and kidnappmgs_ mcr~ase the
complexity, cause instability, and create uncertainty for global engmeenng and
construction (E&C) professionals.
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.
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If construction workers are from countries other than where a proJ:ct IS b_e~ng
constructed, they might be subject to the laws of their native country m addllwn
to host-country laws. In the global E&C arena, it is not always clear wh1ch legal
system has the right to settle disputes; there~or~, I~t~rn~twna~ contracts usually
specify that international arbitration or excluslVe JUnsdtetwns w1ll be used to settle
construction claims and disputes.
This chapter provides information on legal issues tha~ affect_ contra:tual relationships on global E&C projects, including region~llegalis~ues,_ mternatw~al contract clauses, claims and change orders, internatwnal arbitratiOn, :~rron.sm and
kidnapping insurance, regime changes, and liability issues. I_n add1t1on, mter~a
tional contract clauses are discussed, and information is provided on how specific
clauses affect global E&C projects and the ramifications of contract clauses when
judges interpret them in foreign legal systems.
Although E&C professionals work in the global arena, the contracts they use
are referred to as international contracts rather than global _contracts because legal
contracts are between members of two nations not the entire world.
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7.2 International Conventions
Engineering and construction personnel and th~ir clie~ts_ sh_o~ld be familiar wi~
the international conventions that are enforced m the JUriS~Ictwns ~here ~hey a
constructing projects. One resource that contains informatiOn that IS pertment to
136
7.3 Regional Legal Issues
137
international contracting is the Legal Guide for Drawing Up International Contracts
for the Construction of Industrial Work, which is published by the United Nations
Commission on International Trade and Law (UNCITRAL), and another useful
resource is the Martindale-Hubbell International Law Digest (UNCITRAL, 1988;
Martindale-Hubbell, 2000). Examples oflegal conventions include: the Convention
on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known
as the New York Convention, which requires legal systems throughout the world to
honor international arbitration awards; the United Nations Convention on Contracts
for the International Sale of Goods, which includes information on how to draft
international contracts; and the International Commercial Terms (INCOTERMS),
which is published by the International Chamber of Commerce and includes information on terms that are applicable to international contracts (O’Hare, 1980;
UNCITRAL, 1988; Murphy, 2005). The definitions used in the INCOTERMS were
written for sales contracts, but they are also applicable to E&C contracts.
7.3 Regional Legal Issues
Whenever a nation formed a colony, the legal system that was established was
similar to the legal system of the colonizing nation. However, having similar legal
systems does not guarantee that disputes would be settled in the same manner in
both legal systems. Even within nations, there is a high degree of variability in the
outcomes oflegal cases (Stokes, 1978; Knutson, 2005). But being familiar with the
origins of legal systems is advantageous when attempting to settle disputes that
arise on E&C projects. Country-specific laws and a directory of international law
firms are included in the Martindale-Hubbell International Law Digest (MartindaleHubbell, 2000).
7.3.1 Comparative Legal Systems
Civil law and common law are the two most prevalent legal systems. Civil law is
based on the ancient Roman legal system, and the common-law legal system was
implemented during the Norman Conquest to unifY England (Katz, 1986).
7.3.1.1 Civil-Law Jurisdictions
Examples of civil-law jurisdictions include France and Spain and their former colonies (Wolf, 2000). In civil-law jurisdictions, judges are more involved in litigation
processes than in common-law jurisdictions. Civil law does not rely on the use of
previous cases (precedent law) to plead current cases; rather, cases are evaluated
based on existing laws. Therefore, it is easier to prove that an arbitration clause is
valid in civil-law legal systems than in common-law legal systems (Stokes, 1978;
Knutson, 2005). In civil-law legal systems, awards for liquidated damages are usually
based on actual damages, not punitive (to punish) damages.
138
Global Legal Issues for Engineers and Constructors
7.3.1.2 Common-Law Jurisdictions
Examples of common-law jurisdictions include Great Britain and the former colonies of Great Britain, such as the United States, India, and Malaysia (Knutson,
2005). In common-law systems, an adversarial process occurs between opposing
lawyers, and judges maintain a passive role. Civil-law jurisdictions typically em-
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phasize the intent of contracts; common-law legal systems focus on literal interpretations of contract clauses (Knutson, 2005).
Examples that illustrate common-law systems include the British and the U.S.
legal systems. Even though both systems are common-law systems, they use different terminology. In the United States, attorneys who represent clients are referred to as lawyers for the plaintiff, and the lawyer defending someone is the lawyer
for the defense. In the British legal system, attorneys who gather facts for a case are
referred to as solicitors, and the attorney who delivers the argument is called a
barrister. In the United States, the burden of proof is on the person who files a
lawsuit, and in the British legal system the burden of proof is on the defendant.
In the United States, hundreds of people may be called to courthouses as potential jurors, and they are questioned by lawyers; and a certain percentage of them
are rejected by the lawyers. In the British legal system, the names of potential
jurors are written on pieces of paper, put in a box, and 12 names are drawn out
of the box. The United States is predominately a common-law country, but the
state of Louisiana has been influenced by civil law, because it was originally a
colony of France (Katz, 1986).
In the United Kingdom an enemy alien cannot sue in an English court; however,
a plaintiff may sue an enemy alien. An enemy alien is defined as someone or an
organization from a country that is involved in a war between the United Kingdom
and the foreign nation, and the person (or organization) is physically located in
the nation that is at war with the United Kingdom. A citizen of a foreign nation
who is legally living in the United Kingdom is not considered to be an enemy alien
(Hill, 1998). The legal system in Canada is unique in that it has a civil-law system
in Quebec and common-law systems in the nine other provinces.
Asian countries are examples of jurisdictions that are neither common law nor
civil law. The legal system in Japan is derived from ancient Japanese law, but it
was influenced by French civil law. The Japanese are extremely averse to litigation,
as is demonstrated by the fact that the per capita litigation rate in Japan is onetwentieth the rate of litigation in the United States (Katz, 1986). In Japan, there
are eight engineers for every lawyer, and in the United States, there are eight
lawyers for every engineer, which demonstrates major differences in the two societies. In China, conciliation is a preferred method of dispute settlement instead
of litigation, because “the basic goal of Chinese social philosophy is to attain harmony and mediation (and conciliation) is compatible with this Confucian ideal”
(Redfern and Hunter, 1986; Katz, 1986, p. 246).
7.3.1.3 Islamic-Law Jurisdictions
In the Middle East, contracts usually require owners to withhold a certain amount
of the contract price to ensure that a project is completed satisfactorily, and this
7.4 International Contracts
139
is called retention. Performance bonds are rarely used in the Middle East, because
owners do not want to have to sue a bonding company if it is in a foreign nation.
Middle Eastern E&C firms frequently mandate that the records kept by contractors
have to be in Arabic, and they must be physically located in the host country.
Corporate taxes in Middle Eastern countries can be as high as 60 percent, but
they usually are between 30 and 50 percent. If a company is in a joint venture
with a Saudi Arabian firm, their corporate taxes could be exempt for up to 5 years,
and the foreign firm is eligible for loans from the Saudi Industrial Development
Loan Fund (Stokes, 1978). Government projects in Saudi Arabia have to follow
the Government Tender Law of Saudi Arabia, and the government of Saudi Arabia
does not allow labor unions or strikes (Al-Jarallah, 1983; Stokes, 1978).
7.4 International Contracts
Domestic E&C contracts are similar to international contracts, but international
contracts also contain additional clauses that address situations that arise that are
related to the global nature of international projects. This section includes information on the types of clauses that should be included in international contracts
and provides explanations on how and why some of these clauses affect international projects. Table 7.1 provides a summary of the clauses that should be included
in international contracts, along with a brief explanation of each clause (Stokes,
1978; UNCITRAL, 1988).
In order to keep money in the local economy, international construction contracts may be divided into two contracts: one for work done within the host country and the other for work done outside of the host country (Lantis, 2005). One
commonly used standard format international contract is published by the International Federation of Consulting Engineers. In the United States, the American
Institute of Architects (AlA), the Associated General Contractors (AGC), and the
Associated Building Contractors have standard contracts.
7.4.1 Technical Standards and Inspections
Local legal jurisdictions often regulate the technical aspects of E&C projects, as
well as safety and pollution emissions by enforcing local standards. Contracts
should specify technical standards that are internationally accepted, as well as familiar to local contractors. Local subcontractors and suppliers might not be able
to participate in a project or the cost of a project might increase if the standards
being used are not well-known standards. Local inspection and testing institutions
should be used for projects that are in unfamiliar locations. If governments restrict
access to facilities where equipment and machinery are being manufactured, then
owners should specify a testing agency that has access to these facilities.
Government authorities usually inspect construction and test facilities to ensure
that they comply with safety, health, and environmental regulations, so it is im-
140
7.4 International Contracts
Global Legal Issues for Engineers and Constructors
Table 7.1 Synopsis of Common International Contract Clauses
Clause Title
Technical standards and
inspections
Confidentiality
Patents and trademarks
Currency clauses
Language
Local subcontractors and
suppliers
Transporting equipment
Laws of host nation
Liens, subcontracting
Bankruptcy of
contractors
Highlights
Safety: Use local regulations.
Environment: Local regulations.
Technical: International, local, or other country.
Testing: Can use national or international testing
institutions.
Inspections: Municipal governments for safety, health, and
environmental compliance.
Local government might require all documents for a project,
to be submitted to them which compromises
confidentiality. It is hard to enforce these clauses because
parties to the contract are subject to the laws of different
nations.
Only protected in the country where they are issued.
Contractors are paid in local currencies, with a multiplier
for currency-exchange rates.
Can specify that payments be made in a different currency.
Subcontracts may have to be paid in the local currency.
If there are versions of a contract in different languages, the
original version controls.
Contracts may require the use of local subcontractors and
suppliers.
Use local subcontractors and suppliers to maintain goodwill.
There could be size and weight restrictions, and permits
may be required.
Owners should provide local building permits; owners
should help contractors get visas and local work permits
for their personnel.
Customs duties on imported equipment.
Could be duties on some exported items.
Import duties on construction equipment may be required,
even if it will be exported at the end of the job.
Contracts should state who will pay import and export fees.
There could be transit taxes on items shipped.
Some items are illegal to import or export. Check with
respective governments.
If duties increase after a contract is signed, contractors
should file change orders.
Owners may require proof of payment to subcontractors
and suppliers.
Find out if the host government allows liens to be placed
on property if subcontractors or suppliers are not paid by
the prime contractor.
There could be local limits on how much work may be
subcontracted.
Governments should require a certain portion of contracts
to be performed by national personnel.
Owners could be required to make back payments to
subcontractors if they take over subcontracts.
141
Table 7.1 (Continued)
Clause Title
Liquidated damages
Hardship
Index and currency
Exemption
Termination clause
Spare parts and
maintenance after
construction
Choice of law and choice
of forum
International contracts
Highlights of Clauses
Not enforced if they are punitive damages.
Amounts could be reduced by the legal system if there was
partial performance.
Allows renegotiation of contracts based on hardship.
If prices for products rise faster than inflation rates, this
clause allows for renegotiation of contracts.
One party cannot seek damages if the other party does not
perform when items in the exemption clause occur.
Examples include severe weather, natural disasters, civil
strife, riots, war, destruction of the subject matter, fire,
flooding, and the failure of a government to approve a
project.
Owners can terminate a contract for any reason if this
clause is included in the contract.
Some governments do not allow termination unless it is
stated in the contract.
Contracts should state specific conditions for termination.
Contracts should allow contractors to terminate contracts if
owners do not pay, they order a suspension of work, or
they file for bankruptcy.
Some countries do not allow termination due to
bankruptcy.
Some countries do not allow bankruptcies.
Proceedings similar to bankruptcy may be called:
receivership, liquidation, insolvency, assignment of assets,
or reorganization.
If a contract is terminated, it may void contractual
obligations such as dispute-settlement rights and
confidentiality.
Contractors may have to provide spare parts and repair
facilities for a set period of time.
Check whether owners or contractors pay if equipment is
shipped out of a country for repairs.
Allows parties to select which legal system is used for
settling disputes related to the contract. If there is no
choice of law clause, but if there is an arbitration clause,
arbitrators decide which laws apply to contracts.
Could be limited to a country with a connection to the
contract.
Could be different legal systems used to settle different legal
issues.
May stipulate an exclusive jurisdiction and a specific court.
See subheading 7.4 on international contracts.
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7.4 International Contracts
142
Global Legal Issues for Engineers and Constructors
portant to be familiar with host country standards that could be enforced on local
construction projects. If governments change inspection and testing requirements
after a contract has been signed, then contractors are entitled to a change order
that reflects the new cost of complying with government regulations.
7.4.2 Confidentiality
If the governments of host countries require that all project documentation be
submitted to them, this limits the level of confidentiality that can be maintained
on projects. Confidentiality agreements should be entered into before contract negotiations begin to maintain confidentiality during the negotiations. Confidentiality
agreements are difficult to enforce if parties to the agreement are from different
nations, because in the’ global arena, attorney-client confidentiality is not guaranteed, which creates problems for foreign nationals, as well as domestic firms, that
are competing for projects in foreign countries.
7.4.3 Patents and Trademarks
Patents and trademarks are only protected in the country in which the patent or
trademark is registered. There are no global patents, and the laws of one nation do
not extend beyond its borders into other countries. Engineering and construction
personnel are reluctant to use proprietary processes or products in foreign nations
unless they have had a previous (positive) relationship with a client. This cautiousness may reduce the ability of an E&C firm to compete for projects based on
advanced technical capacity.
7.4.4 Use of Local Suppliers
Contractors could be required to use local subcontractors and suppliers to generate
employment in the host nation, or owners might specify the use of local subcontractors and suppliers to earn and maintain goodwill in the local community.
7.4.5 Packaging and Transportation of Equipment
and Materials
Shipping agencies have regulations restricting the size and weight of items to be
shipped, which precludes the use oflarge construction equipment on some projects
and on the shipping of hazardous materials. Transportation permits are required
for shipping large construction equipment, materials, and machinery, and contracts
should specify who is responsible for obtaining these permits.
7.4.6 Laws Governing Engineering and
Construction Personnel
When working in any country, E&C personnel are subject to the laws of the host
nation, as well as federal laws of their native country, such as laws governing the
143
bribery of foreign government officials. International treaties, such as the Kyoto
Protocol, have to be followed by m~mbers of the E&C industry when they are
des1gnmg and constructmg proJects If host nation governments have ratified the
treaties (see Chapter 9).
7.4.7 Local Construction Permits Visas Customs
and Duties
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I_nternational contrac~s should indicate who is responsible for securing permits and
licenses and .for paym~ customs d~ties and transit taxes required for projects.
Custom~ duties. are levied o~ matenals and equipment imported into a country,
and duties are Imposed on Items exported to other countries. Whoever receives
the items being shipped usually pays for custom and transit fees.
7.4.8 Subcontracting
In legal systems where contractual relationships are only betvveen contractors and
subcontractors (not subcontractors and the owner), owners cannot recover losses
from subcontractors, only from contractors. Owners should protect themselves
from liens by requiring. contractors to submit written proof when tbey pay subcontractors or by reqmrmg contractors to provide proof of a payment bond. Liens
are a legal claim against the property that can be filed by subcontractors so that
they are paid for their services when the property is sold. If contractors order
mate.rials from foreign suppliers, they might have to pay taxes in the host country
and m the country of origin of the materials .
. Host-country governments could require a certain level of participation by natiOnal contractors on domestic projects, and owners set requirements on how much
of a contract may be performed by subcontractors. Owners may specify that specific subcontractors have to be used on projects, and prime contractors should
request that their liability be limited if they use the specified subcontractors (UNCITRAL, 1988).
7.4.9 Liquidated Damages
Assessment and enforceability of liquidated damages, which are actual damages paid
to owners on a daily basis when projects are not completed on time, varies
throughout the world. Liquidated damage awards could be reduced or eliminated
If th~y are merely being used to punish a contractor for not completing a project
~n ~1me. Owners must prove that they sustained an actual loss in order to collect
~~q~Idat~d damages. Reviewing prior court decisions from a local court provides
msight mw how the local legal system has settled cases involving liquidated damages. Liqmdated damages attempt to fix the limit of damages that would be incurred m the event that completion of a construction project is delayed. This
predetermmatiOn of damages, which is based upon a precise dollar amount for
each day of delay, eliminates the need to litigate actual damages.
144
Global Legal Issues for Engineers and Constructors
With respect to assessing intent of the parties for the damages not to be penal,
courts will generally allow parties the freedom to contract and to reach agreements
that will not be set aside as penal in nature. The legal theory for this is that when
a contract is entered, which provides for liquidated damages, the parties have a
right to fix the amount by contract, and, if reasonable, the courts will not abrogate
such provisions by declaring them to be a penalty.
One problem with this view is that public construction contracts are frequently
from documents that the contractor must take or leave. There is no freedom to
negotiate the amount of liquidated damages. Nevertheless, this issue of unequal
bargaining power among the parties is generally not considered by the courts in a
typical evaluation of a liquidated damages clause.
Liquidated damages should be set at a reasonable and specific amounts. If they
are too high they will likely be declared penal in nature and hence unenforceable.
The setting of damages at unrealistic levels can cause contractors to generate delay
claims. To reduce litigation regarding liquidated damage clauses, it would be advisable to provide in the contract a general description relative to how the amounts
were calculated. During litigation, the courts will be guided by seeking fair compensation for injuries sustained and will attempt to place the injured party in the
position it would have been in had the delays not occurred. When the contracting
parties keep this principle in mind in the setting of liquidated damages, the courts
will generally allow the provisions to stand.
7.4.1 0 Hardship Clauses
The United Nations Commission on International Trade Law (UNCITRAL) defines
hardship as “a change in economic, financial, legal or technological factors that
causes a serious adverse economic consequence to a contracting party, thereby
rendering more difficult the performance of his contractual obligations” (UNCITRAL, 1988, p. 242). In other words, some type of hardship makes performing
the contract more difficult but not impossible to perform. A hardship clause allows
owners and contractors to renegotiate a contract based on the conditions that
create a hardship. Hardship clauses are not allowed in all legal systems and some
legal systems may not uphold such a clause when it is challenged in a court of
law. Contractual parties can agree to renegotiate the contract even if a hardship
clause is not in the contract, but the presence of a hardship clause makes it easier
to request a renegotiation of the contract.
7.4.11 Index and Currency Clauses
When prices for certain products increase faster than the average inflation rate,
having an index clause allows for automatic adjustments to payments when there
are fluctuations in exchange rates. Currency clauses are also used to account for
fluctuations in exchange rates.
7.4 International Contracts
145
7.4.12 Exemption Clauses
Exemption clauses may be used in a manner similar to impossibility clauses. Items
that might be included in an exemption clause include abnormally severe weather
or natural disasters; civil strife, riots, or war; destruction of subject matter; fire;
and flooding. In international contracts, this clause may include interference by
the host government, acts of terrorism, coups, or host-government agents not
approving projects.
7.4.13 Termination Clauses
Owners are allowed to terminate contracts at their convenience in some countries
even if there is no clause in the contract that permits them to do so. Other gov~
ernments do not allow such unilateral termination unless there is a termination
clause in the contract. Some legal systems require judicial consent for owners to
terminate contracts without termination clauses. If termination clauses are used,
contracts should state the conditions under which the ovvner may terminate a
contract.
If a termination clause in included in contracts, then contractors can terminate
contracts if owners do not provide prompt payment, if they order a long suspension of work, or if they file for bankruptcy. Parties to contracts may not be able
to terminate contracts solely on the basis of the bankruptcy of other parties because
bankruptcy laws of a particular nation control in these situations. Bankruptcy proceedings exist throughout the world, except in India, and they could be called
receivership, liquidation, insolvency, the assignment of assets, or reorganization (UNCITRAL, 1988).
In foreign legal systems, if a contractor is terminated, he or she could loose the
legal right to use dispute-settlement techniques and confidentiality agreements that
are included in the contract unless the contract states that these agreements are
valid even if either party terminates the contract.
7.4.14 Choice of Law, Choice of Forum and Exclusive
Jurisdiction Clauses
‘
Choice of law clauses, choice of forum clauses, and exclusive jurisdiction clauses indicate which legal system has jurisdiction over contracts. If contracts do not have
any of these clauses but they contain an arbitration clause, then arbitrators have
the right to choose which laws will apply to a contract, and these laws might be a
combination of laws from different legal systems (Stokes, 1978). The legal system
selected does not have to be from the host nation or the native country of any of
the parties to the contract.
Legal restrictions could be placed on contracts due to the choice of laws that
governs such items as job-site safety standards, environmental protection, the importing and exporting of materials, taxes and duties, and the transfer of ownership
146
Global Legal Issues for Engineers and Constructors
of property. Local legal systems could restrict the choice of law to a place that has
a connection to a contract, such as the host nation or the legal systems of the
native countries of owners or contractors (UNCITRAL, 1988). Choice of law
clauses cause confusion when contracts specify different choices of law for each
legal issue that could arise during performance of a contract (Rubino-Sammartano,
2001).
The parties writing the contract should make sure that the legal system used in
the country where the project will be built will uphold an exclusive jurisdiction
clause.
7.4.14.1 Calvo Clauses
Calvo clauses, which are named after Carlos Calvo who was a nineteenth-century
Argentinean diplomat, are exclusive jurisdiction clauses that specify that the courts
of a host nation will be used to settle disputes (Bondzi-Simpson, 1990). Calvo
clauses came into practice in 1927, and they were developed by the United StatesMexican General Claims Commission to force plaintiffs to use local jurisdictions
before they file a claim in foreign courts (Stokes, 1978).
7.4.15 Legal Issues in International Joint Ventures
If an international joint venture (I)V) is going to be formed, both parties should
understand the financial and legal status of the other firms that are a party to a
joint venture, and minutes from meetings of the board of directors of IJV partners
provide insight into how companies are managed and whether there is any pending
litigation against them.
International joint venture agreements should include a warranty clause that
waives the liability of partners if there is any pending litigation or omission of
facts that might cause litigation. International joint venture bylaws may be used
in common-law countries but not in civil law countries. How the IJV will be
managed should be put in writing along with who has decision making power and
who has veto power (Wolf, 2000)
When forming an IJV, potential partners should verify that the contracts their
potential partners have with suppliers and customers will be valid and remain in
force after formation of an IjV. Licenses held by I)Vs could be terminated when a
company is sold to prevent the transfer of proprietary data or information to
competitors (Wolf, 2000).
7.5 Claims and Change Orders
Legal issues throughout the world are complicated because courts interpret contract
clauses differently, and the governments of the home nations of employees and
owners might become involved in contractual disputes along with the governments
of nations where firms are incorporated.
7.5 Claims and Change Orders
147
7.5.1 Adjustment and Revision Index Clauses
An adjustment of price occurs when a contractor is paid a different amount from
what is stated in the contract when the scope of work is changed and a revision of
price is used to compensate contractors for changes that arise due to fluctuating
exchange rates and inflation. A revision index clause changes the amount of payments to the contractor based on a specific index. If an index clause is included
in a contract, an algebraic formula may be included for revising payments based
on a price index (UNCITRAL, 1988).
7.5.2 The Defense of Contractors by Home Nations in
Contractual Disputes
The legal theories of denial of justice and expropnatwn are involved when the
government of one party to a contract acts on behalf of that party because the
nation is damaged if the company is damaged in a lawsuit. Under denial of justice,
governments try to make sure that their citizens receive due process of law, which
requires access to the legal system and a fair trial, when they are involved in a
lawsuit in another country (Stokes, 1978). For a denial of justice claim to be valid,
someone has to demonstrate that the judicial process is being delayed or that there
is prejudice or hostility involved in the legal proceedings that makes it impossible
for a foreign national to receive a fair hearing. Foreign nationals have to seek help
from their native country prior to using a host-country legal system (Stokes, 1978).
Usually foreign ministers or state-department officials negotiate a settlement instead of taking cases to an international court. In the United States, the Hickenlooper amendment allows the U.S. government to suspend aid to a foreign country
that seizes property that is owned by U.S. citizens, but this law is used primarily
as a negotiating threat (Stokes, 1978).
Expropriation occurs when a host nation seizes the property of a foreigner, such
as construction equipment, without proper compensation. Foreign governments
do not even have to seize or transfer the title of property for a case of expropriation
to arise; they only have to not allow an owner to use his or her property (Stokes,
1978).
.
7.5.3 Typical Causes of Claims and Change Orders
In construction processes, time is a valuable commodity and owners may require
projects to be completed within a stipulated time frame, or by a specified date.
This is generally provided for by a contract clause indicating “time is of the esscence” where the contractor is obligated to complete the work by the specified date.
Where there is no time-of-the-essence clause, courts require completion within a
reasonable period of time. By virtue of the need for timely completion, should one
party be delayed or believe that they have been delayed by the other party, they
may proceed against that other party in order to recover damages. Such damages,
which do reflect financial losses, serve as a catalyst for the high incidence of construction-delay claims (Yates and Epstein, 2006).
148
7.5 Claims and Change Orders
Global Legal Issues for Engineers and Constructors
Construction claims in the global E&C industry can be submitted for the same
reasons that they are submitted in domestic-court systems. Examples of problems
that arise on international contracts that lead to claims being filed for extra payments include:
• Local regulations for testing structures could be changed after the contract
has been executed, and if this occurs a contractor may submit a claim for any
additional costs associated with the new testing requirements for the project.
Contractors cannot finish projects in developing countries on schedule because they do not have enough laborers, equipment, technically competent
employees, or supervisors or because of delays by subcontractors (Scott, 1993).
Owners could file a claim if projects are delayed because contractors have not
imported enough employees or did not arrange subcontracts in a timely manner.
Guarantees could be voided if contracts do not specify how change orders
affect guarantees (UNCITRAL, 1988).
Owners do not provide prompt payment, which allows contractors to submit
a claim for interest on late payments.
Interest rates for late payments are specified in contracts and applicable local
laws also stipulate interest rates, and the two interest rates are in conflict
(some legal systems do not allow interest to be paid on late payments, which
is the case in some Islamic countries).
149
Equipment
Special resources
These categories provide proper information and data for the accurate monitoring of each and every activity on the project. The specifications should also
provide for a minimum and maximum number of activities on the overall project
as well as minimum and maximum durations for each activity. Once this information is submitted to the owner, it should be reviewed in careful detail. The
approved schedule will be used for the implementation of the work as well as to
establish a baseline for the contractor’s as-planned schedule.
The CPM specification should expressly require sign-offs by the owner, architect, engineer, suppliers of owner-furnished equipment, etc. Meetings should be
held, as necessary, to finalize acceptance of the schedule. All parties should be
required to sign off and approve the schedule. The owner and owner’s representatives should review all aspects of the schedule, including the activity durations,
budgets, etc., since these may become component factors in loss of productivity
claims.
The CPM schedule should provide for updating during the construction phase.
It should be understood that the original schedule is a plan or tool to be used by
the participants, and not a rigid document; it should be changed and updated as
job conditions warrant. The specifications should provide for, or require, that various actions be taken as part of the updating process.
7.5.4 CPM Scheduling
7.5.5 Use of Productivity Factors
The critical path method (CPM) scheduling specifications for a project provide an
opportunity to significantly reduce the incidence of delay claims. The process from
submission/ approval to regular updating through preparation of as-builts should
be meticulously detailed and should require the involvement of not just the contractor and the contractor’s consultant, but of the subcontractors, suppliers, owner,
architect, and engineer. The key to the process should be total commitment and
cooperation of all parties even though it may be time consuming and somewhat
costly.
The CPM submission should require that the contractor, key subcontractors,
and key suppliers have input in preparing the detailed CPM arrow diagram and
related narrative reports. Each activity on the diagram should include the following
at a minimum (Yates and Epstein, 2006):
Loss of productivity on construction projects is frequently difficult to define, therefore, a specification should be provided to address this issue. The contractor should
be required to provide data regarding their actual productivity on the project as it
proceeds and these records should be submitted to the owner for verification.
Owners should specify, if applicable, manuals of productivity that will be utilized
to determine objective standards for productivity. The figures in these manuals
can be adjusted to allow for the particular contractor’s productivity on this, or on
other projects, where variances are documented. The key is to provide a standard
of productivity by which to compare actual productivity. The failure of the contractor to comply with these requirements could be tied into a witholding of progress payments (Yates and Epstein, 2006).
• Description
• Trade
Location
• Duration
• Budget
• Manpower (crew size)
7.5.6 Documentation of Delays
Another important opportunity to reduce or mitigate the possibility of construction-delay claims is to properly address problems and to thoroughly document job
progress as it occurs. Specifications should provide for certain required actions by
the owner and the contractor in the area of project documentation including the
following (Yates and Epstein, 2006, p. 22):
I’
,:I
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7.6 Dispute-Resolution Techniques
Global Legal Issues for Engineers and Constructors
Project Correspondence-Owners should be required by the specifications to
respond to all questions raised by a contractor promptly or within a specific
time frame. Failure to do so should weigh heavily in computing compensable
excusable or time extensions.
Diaries-Should be kept by all parties as a requirement of the specifications.
Daily Logs-Specifications should require an official daily log prepared by the
contractor and submitted to the owner for approval. The owner should then
review it and approve or require modification.
Progress Photographs and Videotapes-Specifications should require dual input and approval by owuer and contractor of photographs, videotapes, descriptions, and narrative reports.
Payroll, Cost, Manpower, and Equipment Records-These should be mandated by specifications. Failure to submit such documentation should be tied
into a withholding of a portion of progress payments.
Minutes of Meetings-Specifications should require periodic meetings and
stipulate who shall attend (contractor, subcontractor, A/E, owuer, etc.).
Progress Reports-Should be required as part of the CPM updating procedure. These reports should be linked to CPM schedule changes.
7.5.7 Notice Provisions
Contract clauses should require proper notice relative to delays and constructive
changes; the time frames and content of all notice requirements should be highlighted by the contractor during bid preparation to assure compliance. Clauses
should require acknowledgement by the owuer in a timely fashion of receipt of
such notification. Specifications should also include time requirements for an
owner to respond to change orders, time extensions notices, and requests so that
a project will not be unnecessarily delayed while such matters are reviewed by the
owner.
151
7.6.1 Negotiation
Negotiation is a common dispute-settlement technique in the global E&C industry
because negotiation is fast, inexpensive, and helps to maintain business relationships. In countries where nonadversarial relationships are the accepted way of
doing business, negotiation is the preferred method for settling disputes (some
Asian countries).
7.6.2 Mediation and Conciliation
Mediation and conciliation are similar in that they do not result in a binding decision. In mediation, someone acts as an intermediary to facilitate communication
between parties in order to bring about a successful negotiated settlement. In conciliation, someone provides a recommended settlement after hearing arguments
from each side. Then the parties have the option of either accepting or not accepting the proposed settlement (Redfern and Hunter, 1986).
7.6.3 Arbitration
Arbitration provides an international forum in which to settle disputes and the
International Arbitration section of this chapter (see 7.7) provides more information on international arbitration.
7.6.4 Litigation
Litigation takes place when one party sues another party in a court of law within
a specific jurisdiction. Since there is no international court of law, the court of a
specific jurisdiction is chosen by the plaintiff, and that is where the case will go to
court (Redfern and Hunter, 1986). In order to avoid a situation where more than
one court hears a specific case, contracts should specify an exclusive jurisdiction.
7.5.8 Exculpatory Clause-“No Damages for Delay”
The “no damages for delay” clause has been utilized for a considerable amount of
time, yet the state of the law remains somewhat unsettled at this time and tends
to vary from jurisdiction to jurisdiction. In an effort to relieve owners from “liability for delay” damages on construction projects, many contracts now contain a
“no damages for delay” clause. This is an exculpatory clause that purports to excuse
an owner from contractural liability for damages due to delays caused by the
owner.
7.6 Dispute-Resolution Techniques
In the global arena, various methods are used to resolve disputes, including
negotiation, mediation, conciliation, arbitration, litigation, and dispute-review
boards.
7.6.5 Dispute-Review Boards
Another, less frequently used alternate dispute-resolution (ADR) technique is dispute review boards (DRBs). Dispute-review boards have been used in Europe for
the past 25-30 years, and they are gaining acceptance in the United States in the
2000s. In order to prevent disputes from escalating to the point where they may
be settled by arbitration or litigation, DRBs could be used on construction projects.
Dispute-review boards are a panel of independent arbitrators who are chosen by
contractors and owners, and the board members are hired at the beginning of a
project to review the contract and make recommendations for settling disputes and
claims on a regular basis. Decisions of the DRB are not binding, and contractors
and owuers still may use other ADR methods to settle disputes and claims (Vorster,
1993).
In addition to analyzing contract documents before they render a decision, DRB
members should conduct site visits. On some construction projects, DRB members
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Global Legal Issues for Engineers and Constructors
have offices at job sites, and they conduct regularly scheduled weeldy meetings to
settle disputes before work progresses any further. Presentations are given by contractors, the owner’s representatives, or the DRB members before the board makes
its decisions.
In a case study that was conducted while a project was using DRB to settle
disputes, it was noted that whoever provided the most polished, well-documented
presentation usually had DRB decisions made in their favor. Recommendations
that were derived from the case-study project for improving DRB techniques include the following (Duran and Yates, 2000, p. 36):
• Special meetings between the contracting parties and the construction
manager are necessary whenever there is sufficient evidence about potential
disputes.
If a project-management oversight contractor is used, he or she should audit
the effectiveness of the DRB and tabulate records of the final costs of settled
disputes compared with original requested costs. Final costs should be compared with costs arrived at through negotiations by both sides rather than the
cost of the potential litigation or of unsettled disputes.
The DRB must be careful about allowing subcontractors to participate in
hearings. The three-party agreement is with the owner, constructor, and board
members, not with subcontractors. The master construction agreement is executed between owners and contractors, not subcontractors.
7.6.6 Cardinal Changes to Contract
If contracts are changed more than a certain percentage (usually 10 percent), it is
considered to be a cardinal change, and it may void a contract if a cardinal change
clause is included in a contract. Before doing work in a country, it is important
to know the extent to which an owner is allowed to change the scope of work
without voiding the contract because contractors could end up performing an
unreasonable amount of extra work if there is no limit to the number of changes
allowed during the execution of a contract.
7.7 International Arbitration
During international arbitration, some legal systems allow parties to obtain interim
relief, or arbitrators may change or add requirements to contracts. Arbitration
awards need to be enforceable, but the enforceability of awards is affected by
government restrictions.
There are several reasons why arbitration is the preferred dispute-resolution
technique rather than litigation including the following:
7. 7 International Arbitration
153
It is less formal than court hearings, and it does not require attorneys.
• Parties are allowed to select arbitrators who are experts in the fields of architecture, engineering, or construction.
• Arbitrators normally respect the contract choice of law whereas court systems
do not always honor the contract choice of law.
• Contracts can specify the location of arbitration proceedings and the language
of the proceedings.
• Arbitration proceedings are less disruptive than litigation, and the results of
the proceedings are confidential. If legal proceedings are used to settle a dispute, there is no confidentiality.
• Arbitration proceedings may be conducted at job sites.
• Settlements can be reached in a few weeks, not the months or years required
in legal systems.
Judicial challenges to arbitration clauses and to arbitration awards are allowed
in some legal systems. Arbitration awards could be overturned if (UNCITRAL,
1988):
• The arbitrators were incompetent;
• A party was unable to thoroughly explain his or her case;
• The arbitration tribunal was not conducted in accordance with the contractual
requirements;
• The arbitration award did not follow public policy.
7. 7.1 Agreement to Arbitrate and Arbitration Clauses
In order for arbitration to take place, all parties to the agreement must agree to
arbitrate either by including an agreement to arbitrate in the original contract or
by an agreement that is created when a claim cannot be settled through negotiations. Some legal systems make it a requirement that all parties must agree to
arbitration when a dispute cannot be settled through negotiation (UNCITRAL,
1988). In these cases, parties should provide a written agreement to arbitrate at
the beginning of the arbitration hearing, even if they have already agreed to arbitrate by having signed a contract with an arbitration clause.
Contracts usually specify an odd number of arbitrators, such as three because
an odd number of arbitrators guarantees that there will not be split decisions and
having three or more arbitrators also provides arbitrators with diverse backgrounds. If arbitration awards are not paid it could result in breach of contract
claims (UNCITRAL, 1988).
The contract or an agreement to arbitrate should specify the location of the
arbitration proceedings, because local jurisdictions regulate arbitration tribunals
within their jurisdiction. Arbitration proceedings should be located in a jurisdiction
where awards will be enforced, such as in a jurisdiction where one of the parties
or their assets are located, or in a jurisdiction within a nation that has an inter-
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Global Legal Issues for Engineers and Constructors
national convention with one or more of the nations involved, or in a jurisdiction
with arbitration regulations that are well suited for international cases. Other issues
that should be considered in selecting the location for arbitration proceedings are
whether a location is convenient for the parties involved in the dispute, the availability of facilities, and the availability of support from members of international
arbitration institutions.
If arbitration proceedings are in the home jurisdiction of a defendant, then
awards are easier to enforce than if the proceedings are in the home jurisdiction
of a plaintiff. Specifying that more than one language be used in arbitration hearings is useful, but paying for translators increases the cost of the proceedings.
7.7.2 Authority of Arbitral Tribunal to Order
Interim Measures
Some jurisdictions allow arbitrators to order interim measures before issuing an
award, and in jurisdictions where interim measures cannot be set by arbitrators,
the court system may order interim measures even if the case is going be settled
by arbitration (UNCITRAL, 1988). However, if a party sues in a court of law to
secure an interim measure, it could void that party’s right to use arbitration proceedings (Knutson, 2005).
7.7.3 New York Convention
The Convention on the Recognition and Enforcement of Foreign Arbitral Awards is
commonly known as the New York Convention. The New York Convention was
written in 1958 but not used widely until the 1970s. The New York Convention
requires defendants to prove that an award is invalid, as opposed to the 1927
Geneva Convention, which requires plaintiffs to prove that an award is valid. The
New York Convention only applies to the enforcement of an award and not to the
hearing stage of a dispute. Arbitrators have to follow the procedures outlined in
arbitration agreements, and if they are not followed, then awards could be invalidated based on the New York Convention (Chukwumerije, 1994).
7.9 Kidnapping and Ransom Insurance
155
London Court of International Arbitration (LCIA), and the Stockholm Chamber
of Commerce (SCC).
7.8 Anticorruption Legislation
In the United States, the federal Foreign Corrupt Practices Act of 1977 prohibits
questionable and illegal payments to foreign officials by U.S. citizens, but the act
does not apply to foreign nationals who receive bribes (National Law Journal, July
12, 2004). The U.S. Sarbanes-Oxley Act of 2002 complements the U.S. Foreign
Corrupt Practices Act, as it pertains to bribes and accounting fraud used to hide
bribes.
The Convention on Combating Bribery of Foreign Public Officials of the Organization of Economic Development (OECD) is a 35-nation treaty that is designed
to reduce international bribery. Under this convention, Australia, Japan, Mexico,
New Zealand, South Korea, and many of the European countries have stopped
allowing firms to write off the bribery of foreign officials on their taxes. The United
Nations Convention against Corruption is a 35-nation treaty that is also being
used to reduce international bribery.
The American Society of Civil Engineers International Activities Committee,
Task Committee on Global Principles for Professional Conduct (with 137,000
members, 15,000 of which are outside of the United States), in conjunction with
the International Federation of Consulting Engineers, the Pan American Federation
of Consultants’ Institution of Engineers, the Japan Society of Civil Engineers, the
National Institute for Engineering Ethics (United States), the United Kingdom
Institution of Civil Engineers, and the World Federation of Engineering Organizations, along with 66 other engineering societies, have all been addressing issues
of bribery, fraud, and corruption with worldwide agreements of cooperation related
to “mutually acceptable principles and guidelines for the procurement of services
and execution of work worldwide-zero tolerance for bribery, fraud, and corruption” (American Society of Civil Engineers Magazine, December 2004, p. 1).
7.7.4 Ad Hoc versus Institutional Arbitration
Under ad hoc arbitration, contractual parties write their own rules for the arbitration process. Institutional arbitration occurs when parties agree to follow the rules
of a particular arbitration institution, and neither party can change the rules. An
advantage of institutional arbitration is that the institution used will provide staff
to conduct arbitration hearings (Redfern and Hunter, 1986). Some examples of
arbitration institutions include the American Arbitration Association (AAA), the
Inter-American Commission of Commercial Arbitration (IACAC), the International Centre for the Settlement of Investment Disputes (ICSID), the International
Chamber of Commerce (ICC), the International Arbitration Association (IAA), the
7.9 Kidnapping and Ransom Insurance
Kidnapping and ransom (K&R) insurance provides benefits to companies if any of
their employees are kidnapped and held for ransom. There are 15,000 reported
kidnappings per year, 70 percent of which are resolved through the payment of
ransom, and only 10 percent result in a rescue without ransom payments (Financial
Times, July 29, 2003).
Executives of E&C firms do not mention that their firms have K&R insurance
because that might result in their employees being targeted for kidnapping. Public
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7. i I Liability Issues
Global Legal Issues for Engineers and Constructors
157
disclosure of a K&R insurance policy typically voids the insurance policy (Insurance
Day, October 22, 2003). Governments of host nations are reluctant to pay ransom
because it encourages more kidnappings. Kidnappers can be prosecuted on charges
of money laundering in addition to kidnapping in some nations such as the United
States and japan (Japan Economic Newswire, September 30, 2004).
Some legal systems require that equipment be permanently installed, yet other legal
systems only require temporary installation for the transfer of ownership to occur.
If an applicable law is not clear as to when transfer of ownership takes place, then
the contract should state when it occurs. For example, if international commercial
terms (INCOTERMS) are specified in the contract, then they will govern the transfer of risks associated with ownership (UNCITRAL, I988).
7.10 Changing Governments
7.11.2 Risk of Loss
Changing government regimes in a violent or dramatic manner presents particular
risks when millions of dollars worth of heavy construction equipment is being used
on projects. For example, the violent Iranian regime change in 1979 resulted in
6000 claims, worth an aggregate total of more than $75 million (U.S. dollars)
(Amin, 1983). The international claims tribunal had difficulty processing arbitration claims from contractors because their contracts included exclusive jurisdiction
clauses stating that disputes would be settled in Iranian courts (Amin, 1983). The
United Nations Compensation Commission was established after the Iraq invasion
of Kuwait to examine claims and verify their validity (Rubino-Sammartano, 200I).
Force majeure (acts of god or beyond anyone’s control) clauses can be used by
contractors during periods of political instability. Another possible defense for
contractors is the legal theory of impossibility which, results in clauses that state
that no one can perform the work due to its destruction or that no one has the
ability to perform the work in its present state (Murphy, 2005).
7.11 Liability Issues
In the global arena, there are different types of risks, and this section discusses
them along with providing suggestions for how such risks might be mitigated on
global E&C projects.
7.11 .1 Sources of Risk
Risks are created by technical, financial, social, and political uncertainties (Williams, 1992). Decision risk is highest during contract negotiations, and as construction projects progress, the risks associated with decisions declines (Moran, 2001;
Wearne, 1992).
The laws applicable to the transfer of ownership of property, including real estate,
may be specified by local jurisdictions where the property is located at the time of
the transfer. In most legal systems, building materials become a part of the project
at the time the materials are installed, as it would be difficult to move them and
reinstall them in the same manner and with the same quality. However, legal
systems vary as to the specific time that equipment becomes part of a structure.
Legal systems either assign risk of loss to the party in possession of the property
or with ownership. In legal systems that assign risk with ownership, contractual
parties are allowed to specify their own terms regarding transfer of risk with ownership. The risks associated with loss of or damage to the tools and equipment of
a contractor normally are borne by contractors, and this risk normally does not
extend to owners (UNCITRAL, 1988).
7.11.3 Taxation within a Host Country
To avoid having contractors inflate their overhead to avoid taxes in a host country,
some countries require a gross-receipts tax on international contracts because it is
difficult to audit international construction overhead. Requiring joint ventures with
local companies helps to track income taxes of expatriate firms. Host-country taxes
may be less if money is not transferred out of a host nation. Contractors can
reduce their taxes by becoming incorporated in a nation that has a tax-reducing
treaty with the host nation (Stokes, I978).
7.11.4 Insurance
Lending institutions might require that contractors obtain advice about reducing
risks from their insurance companies before they start overseas projects. If multiple
insurance policies are used on a project, all of the policies should be evaluated to
determine whether there are any gaps in coverage for some risks and double coverage for other risks. Host-nation government officials could mandate that foreign
contractors be insured by an insurance firm that is located within a host country
and that all insurance claims be paid in local currencies (UNCITRAL, 1988).
7.11.4.1 Professional Liability and Structural-Defect Insurance
Designers could be required to show evidence of having insurance against errors
and omissions when they perform work in foreign nations. Contractors could be
held responsible for defects for 10 years after project completion, and professional
liability and structural-defect insurance covers this risk (UNCITRAL, 1988).
7.11.4.2 Political-Risk Insurance
Political-risk insurance is available through private companies, such as Lloyd’s of
London, and through some governments such as the U.S. government (Kangari
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Global Legal Issues for Engineers and Constructors
and Lucas, 1997). The U.S. Overseas Private Investment Corporation (OPIC) assists
with feasibility studies and loans, and it also provides political risk insurance that
protects firms if local currencies are inconvertible, if projects are expropriated, or
if they sustain any losses when there are wars or revolutions (Stokes, 1978).
7.11.4.3 Workers’ Compensation Insurance
Companies could be required by governments to provide insurance to compensate
employees who are injured at work. Governments that provide workers’ compensation insurance pay either a lump sum or a monthly stipend to injured workers
or the families of deceased workers. Owners could require workers’ compensation
insurance to protect them from being sued if an employee is injured on a job site.
Expatriates should check to see if they are covered by their workers’ compensation
insurance if they are working overseas.
7.11 .5 Contractor’s Guarantee and Performance Bonds
Government officials could mandate that contractors have to provide standby letters
of credit instead of performance bonds. If an owner provides documents proving
that a contractor failed to perform, such as an arbitration award to the bank
holding the standby letter of credit, the bank will issue funds up to a predetermined
limit to owners so that they can perform corrective actions (UNCITRAL, 1988).
7.12 Summary
159
because the party that is allowed to choose might be unjustly enriched if they obtain
more money than they are entitled to from the other party.
It might be difficult for contractors to export their profits back to their home
nation because of host-country laws limiting the international transfer of funds.
One alternative is to exports goods out of the host nation instead of money, but
this is risky if there is no market for the goods being exported or prices decline
for the products being exported back to a home country (Stokes, 1978).
7.11. 7 Local Labor Laws and Risks Associated with Using
the Local Work Force
National and local labor laws control the hiring and firing of members of a local
labor force, and these laws could restrict the firing of employees. In Germany,
employers are required to pay 2 years worth of wages to each worker who is laid
off. One method for reducing this risk is to use local companies that provide
temporary workers who remain employees of the local firm and not the contractor.
Another local labor law might be a mandate to use a certain amount oflocallabor,
even if the local labor is unskilled labor (Stokes, 1978).
Government officials or owners might require foreign companies to train local
labor, but if the owner is the government, contractors should try to negotiate for
compensation to cover some of their training costs.
7.11.6 Risk Associated with Currency Variations
When governments devalue their currencies, it create problems for owners and
contractors; therefore, it is important to monitor currency fluctuations and the
events that cause them. Daily television news broadcasts, such as the British Broadcasting Company (BBC) News, the Deutsche Weller News (German news broadcast
in English), and weekly financial newspapers are sources that provide information
on world events and economic news.
If contractors are paid in their native currency, then owners are assuming the
risk of exchange rate fluctuations, and if contractors are paid in the currency of a
host nation, then contractors are assuming exchange rate risk. If contractors pay
their subcontractors in native currencies, then contractors are assuming exchange
rate risk. Both owners and contractors assume exchange rate risk if contractors are
paid in the currency of a different nation. One option for avoiding these types of
risks is for owners to pay contractors with the currency of the financing institution
supporting a project.
In lump sum and unit price payment contracts, contractors can reduce their
risks if they are paid in the same currency that they use to pay their subcontractors
and suppliers; therefore, contractors might request that owners pay them in multiple currencies. When contractors are paid in a cost-reimbursable system, it is
beneficial to them if they are paid in the same currency that they use to pay their
suppliers and other costs. Contracts should not specify two currencies and then
allow one party to choose which one will be used without a currency adjustment,
7.12 Summary
Legal issues and claims in the global arena may be a decisive factor in whether
projects realize a profit; therefore, having a basic understanding of different legal
systems is essential when operating in a global environment. Engineering and construction personnel should be familiar with whether the legal system they will be
operating under in a foreign country will be similar to or different from the legal
system in their native country (either common law, civil law, or another type of
legal system). International contracts are similar to domestic contracts, but they
include additional clauses that address international issues.
This chapter presented information on the types of legal and contractual issues
that arise during the execution of international contracts. It explained differences
between civil law and common law and how countries evolved into using these
two forms of law. If a person knows which legal system is being used in a country,
it helps him or her try to settle contractual disputes.
In this chapter, international contract clauses were discussed in terms of the
clauses that are different in international contracts versus domestic contracts, and
a table is provided that includes standard international contract clauses along with
a brief explanation of what they mean to someone involved in an international
contract. A section on claims and changes to international contracts was included
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Global Legal Issues for Engineers and Constructors
that also provided examples of situations that could cause claims to arise on international contracts such as labor disputes or payment delays. Information was
also provided on the involvement of home nations in contractual disputes in cases
of expropriation or denial of justice.
International arbitration, agreements to arbitrate, and arbitration clauses were
reviewed, along with the authority of arbitration tribunals to order interim measures in arbitration cases. Anticorruption laws were only discussed briefly because
they vary from country to country. A discussion on kidnapping and ransom insurance was included in this chapter, but a more detailed presentation on kidnapping is provided in Chapter 13. Global liability issues, sources of risk, and insurance
were discussed in this chapter, along with a discussion on changing government
regimes and how changing governments affect construction projects.
DISCUSSION QUESTIONS
1. Explain the difference between civil and common law legal systems.
2. Explain why it is easier to prove that an arbitration clause is valid in civil law legal
systems rather than common law legal systems.
3. Explain why citizens of the United Kingdom can sue enemy aliens, but enemy aliens
cannot sue a citizen of the United Kingdom in a court of the United Kingdom.
4. Explain why Chinese citizens prefer to use conciliation to settle contract disputes rather
than litigation.
5. Explain the legal benefits of forming a joint venture -with a Saudi Arabian engineering
or construction company before doing business in Saudi Arabia.
6. Which five clauses from Table 7.1 always should be included in international contracts,
and why are the five clauses selected more important to include than the other clauses
in Table 7.I?
7. How could confidentiality agreements be enforced on international contracts?
8. When E&C personnel are working in foreign countries, which legal system governs their
actions and why?
9. Explain how a hardship clause benefits owners and contractors if it is included in
international contracts.
10. Explain how exemption clauses are similar to impossibility clauses.
11. Explain the conditions under which owners and contractors can terminate contracts if
a termination clause is included in contracts.
12. Explain choice of law clauses.
13. Explain the difference between an adjustment of price and a revision of price.
14. Explain the difference between denial of justice and expropriation.
15. What would be a reasonable percentage that a contract could be changed by an owner
without it being a cardinal change and why?
16. Why is international arbitration a better way to settle international contract disputes
than litigation?
17. How might the organizations listed in the section on anticorruption legislation be able
to reduce corruption on E&C projects?
18. Why was it so difficult for contractors to settle their contractual disputes in Iran after
the Iranian revolution in 1979?
19. Explain political risk and how it affects E&C contracts.
References
161
20. Discuss which currency should be used to pay a foreign contractor if he or she is
performing work in a host country using subcontractors that are from a country that
is not the host nation and why.
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- Will complete your papers in 6 hours
- On-time Delivery
- Money-back and Privacy guarantees
- Unlimited Amendments upon request
- Satisfaction guarantee
How it Works
- Click on the “Place Order” tab at the top menu or “Order Now” icon at the bottom and a new page will appear with an order form to be filled.
- Fill in your paper’s requirements in the "PAPER DETAILS" section.
- Fill in your paper’s academic level, deadline, and the required number of pages from the drop-down menus.
- Click “CREATE ACCOUNT & SIGN IN” to enter your registration details and get an account with us for record-keeping and then, click on “PROCEED TO CHECKOUT” at the bottom of the page.
- From there, the payment sections will show, follow the guided payment process and your order will be available for our writing team to work on it.