International construction contracts are prone to all sorts of problems. Many of them are of the type not experienced in construction projects in the UK. Revolutions, epidemics, major corruption, riots, earthquakes and hurricanes have all played their part in major construction projects worldwide.
These types of catastrophes and the relative instability of a number of developing countries sometimes provide outside contractors with opportunities for international construction works. More experienced contractors that have had bad experiences with international projects will often steer clear of them. However, the less experienced contractor is even less equipped to deal with the problems when they arise.
The international forms of construction contracts provide the contractor with limited relief if catastrophic events arise. The new forms of FIDIC contract, known colloquially as the Red, Silver and Orange Books, published in late 1999, are less favourable than the earlier forms of FIDIC contract. They allow the contractor extensions of time, for instance, for “exceptionally adverse climatic conditions”. A word of caution: while it would be natural to assume that a hurricane affecting a project in the West Indies would be classified as “exceptionally adverse”, during certain periods, hurricanes are not particularly exceptional in that part of the world. Therefore, it may not be possible on that basis to obtain a time extension for project delays caused by a hurricane during the hurricane season.
Extensions of time are also due where “force majeure” occurs. The forms define this as an exceptional event or circumstance beyond the party’s control that could not reasonably have been provided against before entering into the contract or otherwise reasonably avoided or overcome, and which is not substantially attributable to the other party.
- FIDIC forms are less favourable than their predecessors
- Extensions of time can be granted only in very specific circumstances
- Profit cannot be recovered after force majeure
Again, a hurricane may not fall within that definition if it is not exceptional in the part of the world where the work is being done. Usually, war or rebellion will qualify as force majeure. However, when (as is currently the case in Ethiopia) the government initiates a war with its neighbour and that war interferes with the project, that may not classify as force majeure if the government is a party to the contract; force majeure does not arise if the event is largely attributable to the other party to the contract.
If an event of force majeure occurs and prevents performance under the contract, extensions of time will be due together with the payment of what is called “cost”. Cost does not include profit. If the force majeure event delays the project by a continuous period of 84 days, either party may terminate. The financial adjustment that then follows will not fully compensate the contractor; there is no entitlement to any profit lost, and losses flowing from the termination (as opposed to costs or liabilities incurred in the “expectation of completing the works”) will not be recoverable.
Corruption is believed by many to be endemic in some developing countries.
It is said that in certain African countries, a contractor has to pay small amounts to each of the six to 12 signatories needed for an interim payment certificate (this is said to arise because the civil servants whose signatures are required are not paid salaries). The FIDIC conditions render that relatively low-level behaviour a termination offence. The standard conditions, however, do not highlight as any sort of offence the major corruption that is sometimes necessary to procure the awarding of the contract in the first place.
Robert Akenhead QC is a barrister specialising in construction law at Atkin Chambers and joint editor of Building Law Reports.