International Construction Contract Law

DR. LUKAS KLEE, LL.M, PHD, MBA is an independent expert in international construction contracts and principal at Klee Consulting, offering construction contract services, dispute resolution and bespoke training. Lukas has dealt with international construction contracts on a daily basis for over fifteen years and has participated in construction projects in the Czech Republic and internationally. Details at: www.klee-consulting.com.

• About the Author xxiiiForeword xxvSvend PoulsenAcknowledgments xxviiIntroductory Remarks xxixShuiboZhangIntroductory Remarks xxxiRobert WerthIntroductory Remarks xxxiiiIlya Nikiforov1 International Construction Projects 11.1 The unique nature of the construction industry 11.2 Individuality of construction projects 11.3 Roles and relationships 21.4 Contract administration 4In-Text Vignette: Engineer’s power to re-rate due to substantial increase in BoQ quantities by Albert Yeu (Hong Kong) 101.5 Further important aspects of construction projects 111.6 Typical contractual relationships 12In-Text Vignette: Shipping and marine construction contracts in Asia by Knut Kirkhus (Oman)121.7 Motivation for international business 15In-Text Vignette: The Italian construction industry: Between past and future by SDG & Partners (Italy) 171.8 Managerial analysis 201.9 Hazards and risks 211.10 Hazard identification 211.11 Risk analysis 221.12 Anti-risk measures 221.13 Typical hazards in the international construction business 23In-Text Vignette: Corruption on Peruvian gas pipeline contract by Enrique Moncada Alcantara (Peru) 24In-Text Vignette: Anticorruption and construction contract law by Enrique Moncada Alcantara (Peru) 27In-Text Vignette: Indian law by C.K. Nandakumar and Rishabh Raheja (India) 331.14 Risk allocation in contracts 35In-Text Vignette: Wrongforms of contract by James Bremen (UK) 36In-Text Vignette: The importance of early analysis of risk, knowledge of efficient risk allocation and right choice of delivery method by Conor Mooney (France) 361.15 Form of Business Organization 42In-Text Vignette: To deal with subcontracts in international construction projects by Giuseppe Broccoli and Fabio Zanchi (Italy) 42In-Text Vignette: Interface agreements between subcontractors by Bernd Ehle and Sam Moss (Switzerland) 482 Civil Law and Common Law 552.1 Specifics of the governing law 552.2 Common law versus civil law: Differences and interconnections  55In-Text Vignette: The common law of Australia and the influence of statutory law by Donald Charrett (Australia) 572.3 Delay damages (liquidated damages) versus contractual penalty 59In-Text Vignette: The use of liquidated damages in construction projects by Rob Horne (UK) 60In-Text Vignette: Penalty clauses and liquidated damages under Brazilian law by Thiago Fernandes Moreira and Caio Gabra (Brazil) 722.4 Substantial completion versus performance 762.5 Binding nature of adjudication awards 782.6 Limitation of liability 792.7 Lapse of claim due to its late notification (time bars) 792.8 Allocation of unforeseeable and uncontrollable risk to the contractor 802.9 Contract administration (the Engineer’s neutrality and duty to certify) 902.10 Termination in convenience 90In-Text Vignette: Isan employer in breach of contract prevented from terminating the contract for its convenience? by Cecilia Misu (Germany) 912.11 Time-related issues 932.12 Quantification of claims 942.13 Statutory defects liability 952.14 Performance responsibility: Reasonable skill and care versus fitness for purpose 952.15 Common law, civil law, and Sharia interconnections 96In-Text Vignette: Considerations for the construction of offshore oil and gas structures in the Middle East by Faisal Attia and Fernando Ortega (Qatar) 973 Common Delivery Methods 1023.1 Common delivery methods: Main features 1023.2 General contracting 1043.3 Design-build 105In-Text Vignette: Dutch design and construct of infrastructural projects in complex environments by Joost Merema (the Netherlands) 109In-Text Vignette: Best value in the Netherlands by J.N. (Jaap) de Koning (the Netherlands) 126In-Text Vignette: Concern over increasing adoption of design build for infrastructure works—JICA funding projects by Takashi Okamoto (Japan) 1283.4 Construction management 131In-Text Vignette: Interface management and interface agreements by Zachary Ferreira (the United States) and Alex Blomfield (UK) 1323.5 Multiple-prime contracts 1383.6 Partnering 138In-Text Vignette: Integrated project delivery—“Collaborate rather than litigate” by Edward J. (“Ned”) Parrott (the United States) 1393.7 Alliancing 140In-Text Vignette: Targetprice and early risk identification/management: London 2012 Olympics by Klaus Grewe (UK) 1403.8 Extended delivery methods (PPP, BOT, DBO) 143In-Text Vignette: Public-private partnerships by Steven Van Garsse (Belgium) 144In-Text Vignette: Infrastructure through public-private partnerships in the Philippines by Aris L. Gulapa andDan Kevin C. Mandocdoc (the Phillipines) 1463.9 Further aspects of delivery methods 153In-Text Vignette: BIM—The way forward? by Christopher Miers (UK) 156In-Text Vignette: Developments in BIM application: Legal aspects by Joost Merema (the Netherlands) 159In-Text Vignette: BIM: A superior approach for infrastructure construction by Josef Žák (the Czech Republic) 1664 Specifics of EPC and EPCM 1724.1 EPC and EPCM 1724.2 Engineer procure construct (EPC) 172In-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) 1754.3 Bespoke EPC contracts 177In-Text Vignette: Mitigating the risk of delays in power plant projects: An EPC contractor’s view on different contractual concepts by Jacob C. Jørgensen (Denmark) 1784.4 Turnkey EPC contracts 185In-Text Vignette: Water treatment wind farm, and road construction projects in Asian and African countries by Stéphane Giraud (France) 1864.5 Front end engineering design 188In-Text Vignette: Key issues in the procurement of international hydropower construction contracts by Alex Blomfield (UK) 1894.6 Engineer procure construction management (EPCM) 192In-Text Vignette: The use of the EPCM delivery method in the mining industry by Mark Berry (UK) and Matthew Hardwick (UK) 1954.7 EPC versus EPCM 200 In-Text Vignette: Offshore construction by Fernando Ortega (Qatar) 2025 Unification and Standardization in International Construction 2155.1 Unification of contracts 2155.2 Unification per law, principles, and sample documents 215In-Text Vignette: Resolving construction claims under investment treaty arbitration by Fernando Ortega (Qatar) 2185.3 Lenders and their influence on unification 2205.4 Standard form of contract in a governing law context 2225.5 Purpose of sample documents in construction projects 2225.6 Standard sample forms as a source of law 2245.7 Lex causae 2245.8 Interpretation 225In-Text Vignette: Inconsistency in contract documents by Patrick Kain (South Africa) 2265.9 Trade usage and business custom 229In-Text Vignette: A common law of construction contracts—or Vive La différence? by Donald Charrett (Australia) 2305.10 Lex constructionis principles 232In-Text Vignette: Contractor’s duty to mitigate delay and damages under FIDIC 1999 standard forms and in lex mercatoria by Vladimir Vencl (Serbia) 2345.11 The use of lex constructionis 240In-Text Vignette: Future-proofing construction contracts by Shy Jackson (UK) 2406 Price 2446.1 Contract price 244 In-Text Vignette: International construction measurement standards: Global consistency in cost analysis by Simon Collard (United Arab Emirates) 2456.2 Bid pricing methods 2476.3 Methods of contract price determination 2486.4 Re-measurement 2496.5 The lump sum 2526.6 Cost plus 2526.7 Guaranteed maximum price 2536.8 Target price 2536.9 Payment 254In-Text Vignette: Taxation in international construction contracts by Alex Blomfield (UK) 255In-Text Vignette: Managing the risk of non-payment by Sean Sullivan Gibbs (UK) 2576.10 Contract price under FIDIC forms 2616.11 Cost overruns 2636.12 Abnormally low tender (ALT) 264In-Text Vignette: Best value approach in the Netherlands by Wiebe Witteveen (the Netherlands) 2656.13 Claims as part of contract price 2736.14 Public procurement law limitations 273In-Text Vignette: A concept of variation in a construction contract under Polish public procurement by Michał Skorupski (Poland) 2757 Time 2807.1 Time in construction 2807.2 Delay 2807.3 The United Kingdom Society of construction law delay and disruption protocol 2827.4 Time program 2837.5 Ownership of floats 285In-Text Vignette: Time extension and float ownership under the FIDIC Red and Yellow Books (1999) by Frank Thomas (France) 2857.6 Time at large and extension of time (EOT) 2987.7 Concurrent delay 300In-Text Vignette: Delay clauses in different jurisdictions by Jacob C. Jørgensen (Denmark) 3017.8 Disruption 3027.9 Time for completion under FIDIC forms 3037.10 Time program under FIDIC forms 304In-Text Vignette: A lack of realism in negotiations by James Bremen (UK) 3067.11 Delay and suspension under FIDIC forms 3067.12 Contract termination under FIDIC forms 3098 Variations 3138.1 Variation clauses 3138.2 Variations under FIDIC forms 315In-Text Vignette: Sub-Clause 13.2 value engineering under the FIDIC forms by Manuel Conthe (Spain) 3168.3 Claims related to variations 319In-Text Vignette: The nightmare of valuing omissions by Aymen K. Masadeh and Remon Farag (UAE) 3218.4 Acceleration 329In-Text Vignette: Drafting acceleration agreements by Alan Whaley (UK) 333In-Text Vignette: The U.S. approach to constructive acceleration by Robert A. Rubin and Sarah Biser (the United States) 336In-Text Vignette: Constructive acceleration claims: A common law perspective by Alan Whaley (UK) 3398.5 Proving the acceleration claim 3408.6 Substantial change 342In-Text Vignette: Modification of contracts during their execution under EU law by Odysseas P. Michaelides (Cyprus) 343In-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) 3479 Claims 3649.1 Claims 364In-Text Vignette: Claims caused by deficiencies in tender documents by James Bremen (UK) 3689.2 Contractor’s claims under FIDIC forms 3689.3 Employer’s claims under FIDIC forms 369In-Text Vignette: Employer’s notices by Victoria Tyson (UK) 369In-Text Vignette: Claims in the St. Petersburg flood protection barrier construction by Aleksei Kuzmin (Russia) 3739.4 Lapse of claim 3779.5 Cause of the claim 3789.6 Limits of the lapse of claim 379In-Text Vignette: Construction claims in the UK by Garry Kitt (UK) 381In-Text Vignette: Condition precedent and time-barred claims under Polish law by Michał Skorupski (Poland) 383In-Text Vignette: Australian position on time bars by Andrew P. Downie (Australia) 385In-Text Vignette: Timebars under Kuwaiti law by Dina Al Ansary (Kuwait) 39210 Claim Management 39510.1 Claim management 39510.2 Claims for extension of time (EOT) 39610.3 Claims for additional payment 39810.4 Claims resulting from delay and/or disruption under the provisions of the contract 399In-Text Vignette: Considerations related to site overhead claims by Gary Kitt (UK) 400In-Text Vignette: Head office overhead claims under FDIC contracts by Alan Whaley (UK) 410In-Text Vignette: Calculation and recovery of home/head office overhead in North America by James G. Zack (the United States) 41210.5 Claims resulting from governing law 42410.6 Global claims 425In-Text Vignette: All global claims are not negatively “global”! by Frank Thomas (France) 42810.7 Contractor’s claim management under FIDIC forms 42910.8 Employer’s claim management under FIDIC forms 43110.9 Intercultural aspects 432In-Text Vignette: “Claim” as perceived in the Polish civil law environment by Michał Skorupski (Poland) 43410.10 Claim management implementation 436In-Text Vignette: Claims in a tunnel construction in the Republic of Serbia by Radim Wrana (the Czech Republic) 437In-Text Vignette: The evolution of contractor’s claims in Peru/South America by Jerry Pessah (Peru) 43811 Construction Dispute Boards 44211.1 Construction disputes 442In-Text Vignette: Construction dispute in sheet metal galvanizing line project by Patrick Kain (South Africa) 44211.2 Dispute boards 444In-Text Vignette: Project dispute avoidance by Christopher J. Mather (the United States) 445In-Text Vignette: Dispute resolution boards: The long-term experience from the United States by Robert A. Rubin (the United States) 45111.3 Contractual adjudication: The use of DAB in FIDIC forms 454In-Text Vignette: Construction disputes in Ukraine by Roger Ribeiro and Yaryna Bakhovska (Ukraine) 45711.4 Enforcement of dispute board decisions 464In-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) 46911.5 Statutory adjudication 471In-Text Vignette: Statutory adjudication by Nigel Grout (UK) 471In-Text Vignette: Settling construction disputes in Hungary by Tamás Balázs (Hungary) 474In-Text Vignette: Statutory adjudication in Australia by Donald Charrett (Australia) 475In-Text Vignette: Statutory adjudication in Malaysia by Albert Yeu (Hong Kong) 48112 FIDIC 48512.1 FIDIC expansion 485In-Text Vignette: Using translated texts in FIDIC contracts: The Spanish case by Ignacio de Almagro (Spain) 48512.2 FIDIC 48712.3 FIDIC’s influence on the construction industry 48812.4 FIDIC membership 48812.5 Networking activities 489In-Text Vignette: The use of FIDIC forms in Russia by Dmitry Nekrestyanov (Russia) 492In-Text Vignette: The use of FIDIC forms in Brazil by Rafael Marinangelo (Brazil) 493In-Text Vignette: The use of FIDIC Forms within the construction contract law of Turkey by Yasemin Çetinel(Turkey) 493In-Text Vignette: The use of FIDIC forms in Azerbaijan by Farid Nabili (Azerbaijan) 502In-Text Vignette: The use of FIDIC forms in Nigeria by Marc J. Enenkel (Germany) 505In-Text Vignette: The use of FIDIC forms in Ukraine by Svitlana Teush (Ukraine) 507In-Text Vignette: The use of FIDIC forms in Vietnam by David Lockwood (Vietnam) 513In-Text Vignette: The use of FIDIC forms in Kazakhstan by Artyushenko Andrey (Kazakhstan) 51712.6 FIDIC forms of contract 522In-Text Vignette: Journey to the “kitchen” of FIDIC: How FIDIC publications are produced by Husni Madi (Jordan) 52412.7 The structure of the contract under FIDIC forms 52712.8 Conditions of contract for construction (CONS)—1999 Red Book 530In-Text Vignette: Misapplications of FIDIC contracts in the United Arab Emirates by Kamal Adnan Malas (United Arab Emirates) 53112.9 Conditions of contract for plant and design-build (P&DB)—1999 Yellow Book 53512.10 Conditions of contract for EPC/Turnkey projects (EPC)—1999 Silver Book 53612.11 Short form of contract—Green Book 53712.12 Construction subcontract 53712.13 Conditions of contract for design, build, and operate (DBO)—Gold Book 538In-Text Vignette: The 2017 updates of the 1999 FIDIC forms of contracts (Red, Yellow, and Silver Books) by Zoltán Záhonyi (Hungary) 54112.14 Other FIDIC standard forms 547In-Text Vignette: FIDIC suite of consultant agreements by Vincent Leloup (France) 547In-Text Vignette: The use of FIDIC contracts by the mining industry in Africa by Coenraad Snyman (South Africa) 55112.15 Risk allocation under FIDIC forms 553In-Text Vignette: China’s standard form of construction contract in comparison with FIDIC forms by Shuibo Zhang (China) 556In-Text Vignette: Explanation of FIDIC EPC risk allocation by FIDIC 561In-Text Vignette: The FIDIC golden principles—A new approach to discouraging inappropriate amendments to standard form contracts by Donald Charrett (Australia) 56312.16 Design responsibility under FIDIC forms 566In-Text Vignette: Design Liability: risk share, conflicts and a little bit of common sense? by Cecilia Misu (Germany) 56813 Other Standard Forms of Construction Contracts: NEC, ICC, ENNA, IChemE, Orgalime, AIA, VOB 58013.1 Common standard forms of construction contracts 58013.2 The NEC (New Engineering Contract) 580In-Text Vignette: The NEC form of contract—ready for the international market by Rob Horne (UK) 58513.3 FIDIC forms versus NEC3 59413.4 ICC forms of contract 59713.5 ENAA forms of contract 59713.6 IChemE forms of contract 59813.7 Orgalime forms of contract 59913.8 Standard forms of construction contracts in the Czech Republic 600In-Text Vignette: United States standard form contracts by Edward J. (“Ned”) Parrott (the United States) 60213.9 VOB: German standard 60713.10 Invalid clauses in German case law 613In-Text Vignette: The standard forms of construction contract in Australia by John Sharkey (Australia) 614In-Text Vignette: Construction contracts in the Republic of Ireland by Arran Dowling-Hussey (Ireland) 61714 Risk and Insurance 62314.1 Insurance in construction 62314.2 Commercial risk, risk of damage, and exceptional risk 624In-Text Vignette: Weather risk in offshore wind construction contracts by Alex Blomfield (UK) 62714.3 Risk management in the standard forms of contract 63014.4 Hazards and risks in construction projects 632In-Text Vignette: The difficulties connected to construction risk quantification by Dejan Makovšek(France) 635 14.5 Insurance requirements in standard forms of contract 640In-Text Vignette: Professional indemnity insurance under the FIDIC yellow book by Richard Krammer (Austria) 642In-Text Vignette: Insurance in hydropower projects by Alex Blomfield (UK) 65114.6 Practical aspects of insurance in construction projects 652In-Text Vignette: Incompatibility of the construction contract with the insurance contract by Karel Fabich (the Czech Republic) 65514.7 International insurance law and insurance standards in the construction industry 655In-Text Vignette: Construction/erection all risk insurance in the offshore wind industry by Gregory Efthimiu (Germany) 65815 Risk in Underground Construction 66415.1 Underground construction hazards and risks 66415.2 Code of practice for risk management of tunnel works 66515.3 Alternatives of unforeseeable physical conditions risk allocation 667In-Text Vignette: Geotechnical baseline reports as a risk management tool by Randall J. Essex (the United States) 668In-Text Vignette: Geotechnical baseline used in contractor’s bid by Michal Uhrin (the Czech Republic) 67915.4 Unforeseeability 68415.5 “Unforeseeability” according to FIDIC forms 68415.6 Site data 686In-Text Vignette: Water-related construction projects by Robert Werth(Germany) 68915.7 Sufficiency of the accepted contract amount 69115.8 Unforeseeable physical conditions 692In-Text Vignette: Ground conditions risk in an EPC contract for a gas treatment plant by Cristina Della Moretta (Italy) 69315.9 Unforeseeable operation of the forces of nature 697In-Text Vignette: Clairvoyance: A contractor’s duty? by Gustavo Paredes and Katherine Waidhofer (Peru) 69715.10 Force majeure 70015.11 Release from performance under law 70116 Securities 70316.1 Securities in construction 70316.2 Bank guarantees 70416.3 Functions and parameters of bank guarantees 70416.4 Specifics of retention guarantee 706In-Text Vignette: Performance security and termination payment security in hydropower projects by Alex Blomfield (UK) 70816.5 Governing law 709In-Text Vignette: Common law specifics related to securities by Rupert Choat and Aidan Steensma (UK)      71016.6 ICC rules related to securities 71216.7 Suretyship 71216.8 Stand-by letter of credit 71316.9 Securities under FIDIC forms 71417 Civil Engineering Works: Infrastructure Construction Projects 71617.1 Investments in developing countries 71617.2 The approach to the risk allocation in the United States 71717.3 The approach to the risk allocation in the United Kingdom 719In-Text Vignette: Construction of airports by Patrick Kain (South Africa) 72017.4 The approach to the risk allocation in Central and Eastern Europe 722In-Text Vignette: The Romanian experience by Claudia Teodorescu (Romania) 72517.5 The Polish experience 731In-Text Vignette: FIDIC Forms and contractual relationships in Poland by Aleksandra Marzec (Poland) 731In-Text Vignette: Market environment prior to and after 2008: The need for change in procurement by Michał Skorupski (Poland) 734In-Text Vignette: Claims considerations by Aleksandra Marzec (Poland) 740In-Text Vignette: Contractor defense measures by Michał Skorupski (Poland) 74517.6 The Czech experience 748In-Text Vignette: Local limits for development: An interview with Shy Jackson (UK) by Lukas Klee (the Czech Republic) 75018 Building Construction: Health Care Facilities 75618.1 Health care facility construction project 75618.2 Pre-design planning phase 75618.3 Design phase 75718.4 Basic structure of a hospital 75818.5 Efficiency and cost effectiveness         75818.6 Flexibility and expandability 75918.7 Therapeutic environment 75918.8 Cleaning and maintenance 75918.9 Controlled circulation and accessibility 76018.10 Aesthetics 76018.11 Health and safety 76118.12 Use of information technology 76118.13 Relevant regulations and standards 76118.14 Health care facility construction project: Suitable delivery method 762Appendix A: Interactive Exercises 766A.1 Interactive exercise 1: Delivery method selection 766A.1.1 Task 766A.2 Interactive exercise 2: Claim for delayed site handover 767A.2.1 Task 767A.2.2 Time schedule (program) 768A.2.3 Site handover procedure 768A.2.4 Mobilization  768A.2.5 Acceleration 768A.2.6 Claims 768A.3 Interactive exercise 3: Claim due to suspension of work 769A.3.1 Task 769A.3.2 Suspension 769A.3.3 Mobilization  769A.3.4 Claims 770A.4 Interactive exercise 4: Subcontractor claim for contractor delay (lack of cooperation, inadequate on-site coordination and improper, unclear, and delayed instructions) 770A.4.1 Task 770A.4.2 Fact 1—Lack of cooperation 771A.4.3 Fact 2—Inadequate on-site coordination 771A.4.4 Fact 3—Improper, unclear, and delayed instructions 771Appendix B: Sample Letters (Examples of Formal Notices) 772Appendix C: Dictionary of Construction Terms: English, German, French, Hungarian, Czech, Russian, Polish, Spanish, Portuguese and Chinese 791C.1 Dictionary—General part 792C.2 Dictionary—Contractor’s claims 800C.3 Dictionary—Employer’s claims 804Appendix D: Claim Management System under FIDIC Forms 807D.1 Claim management team responsibilities 807D.1.1 E1—Project manager 807D.1.2 E2—Design and time schedule (program) 808D.1.3 E3—Site manager 808D.1.4 E4—Contract interpretation, monthly statements, invoicing, insurance, subcontractors, employer’s claims, mutual claims in a joint venture 809D.1.5 E5—Administrative support 809D.2 Claim management processes 810D.3 Table of contractor’s claims under FIDIC CONS 811D.4 Table of employer’s claims under FIDIC CONS 811Appendix E: FIDIC Forms Risk Allocation Charts 813E.1 Chart No.1: Basic risk allocation alternatives in connection with unforeseeable physical conditions 813E.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 813Index 817