FROM THE IBA INTERNATIONAL CONSTRUCTION PROJECTS COMMITTEE OF THE ENERGY ENVIRONMENT, NATURAL RESOURCES AND INFRASTRUCTURE LAW SECTION (SEERIL) Vol 13 ISSUE 4 ISSN 1819-1371 JANUARY 2019
Focus on key aspects for successful project establishment, contract termination and use of expert evidence
Use and misuse Key steps for Construction of expert a successful contract evidence project termination
CONTENTS Vol 13 ISSUE 4 A Committee publication from the IBA Energy, Environment, Natural Resources and Infrastructure January 2019 Law Section tinyurl.com/IBA-SEERIL
FEATURE ARTICLES 2 FROM THE EDITORS 3 FROM THE CO-CHAIRS Use and misuse of expert evidence 4 FIDIC AROUND THE WORLD 13 Kenneth Figueroa, Christian Johansen, Kim Rosenberg and Russell Thirgood address issues relating to the use of expert 4 Switzerland evidence in common law and civil law proceedings. 7 FIDIC COMMENTARIES 7 Adding the best bits of FIDIC 2017 to the 1999 Forms The key steps to successful project 31 establishment 9 How does the new German Polina Chtchelok, Aarta Alkarimi, Phillip Greenham construction law affect the and Tuomas Lehtinen of the Project Establishment implementation of the 2017 Subcommittee of the International Construction Projects Committee summarise key operational, FIDIC Silver Book? legal and financial issues to consider, and steps to take, when launching a major infrastructure or construction project.
Issues arising on termination of a 46 construction contract Dimitris Kourkoumelis, Ian de Vaz, Thomas Stickler, Edward Corbett, Virginie Colaiuta and Shona Frame address termination for default versus termination for convenience; requirements as to the substance and form of a termination notice; and the legal consequences of a wrongful termination.
Legal aspects of Building 56 Information Modelling in the Netherlands: the procurement of a work with a BIM component – Part 2 Dr Evelien Bruggeman provides the second instalment of her article on BIM in the Netherlands, addressing the International Bar Association possible use of selection criteria for the BIM component, the award criteria for BIM and in particular the use of a 4th Floor, 10 St Bride Street, London BIM Execution Plan. EC4A 4AD, United Kingdom Tel: +44 (0)20 7842 0090 Fax: +44 (0)20 7842 0091 www.ibanet.org Editorial: [email protected] Advertising: andrew.webster-dunn@ int-bar.org
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CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 1 COUNTRYFROM UPDATES THE EDITORS
ear members of the International Construction Projects (ICP) Committee, D I am glad to introduce the fourth and final issue of Construction Law International (CLInt) 2018, which includes the contributions from the speakers of two successful panels of the recent IBA Annual Conference held in Rome on 7–12 October 2018. The first panel was co-chaired by Murray Armes and Andreas Roquette. The speakers, Kenneth J Figueroa, Christian Johansen, Kim Rosenberg and Russell Thirgood, addressed the use of experts in common law jurisdictions; court-appointed experts with a civil law approach; practical and innovative use of experts in construction disputes; and some peculiar issues relating to expert evidence. Under the coordination of Jane Davies Evans and Bruce Reynolds, acting as Co-Chairs, a second panel at the IBA Annual Conference focused on termination issues, analysed from the point of view of different civil law and common law jurisdictions. The panellists were Dimitris Kourkoumelis, Ian de Vaz, Thomas Stickler, Edward Corbett, Virginie Colaiuta and Shona Frame. The above contributions are preceded by an article analysing the key aspects of successful project establishment, which was collaboratively drafted, under the supervision of Polina Chtchelok, by the Co-Chairs and Vice-Chairs of the Project Establishment Subcommittee. This edition also includes the answers to the CLInt FIDIC Questionnaire for Switzerland, prepared by Laura Azaria and China Irwin, and two FIDIC commentaries. The first commentary is from Edward Corbett, who recommends the combined use of FIDIC 1999 and FIDIC 2017 forms, identifying the best parts of both. The second commentary, from Tobias Boecken, Elisa Freiburg and Claudia Krapfl, examines how the enactment of the new German construction law may affect the implementation of the 2017 FIDIC Silver Book. Finally, we share Part 2 of Evelien Bruggeman’s article, titled ‘Legal aspects of Building Information Modelling (BIM) in the Netherlands: the procurement of a work with a BIM component’. Bruggeman analyses the possible use of selection criteria for the BIM component; the award criteria for BIM, and, in particular, the use of a BIM Execution Plan, which describes how the demands of employers are met. Part 1 of Evelien’s article was published in Issue 2 of 2018; CLInt Volume 13. We hope you will enjoy reading this edition and we invite you all to contribute to CLInt by submitting your drafts to [email protected].
Virginie Colaiuta ICP Committee Editor LMS Legal LLP, London [email protected]
2 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 FROM THE CO-CHAIRS
ear International Construction Project (ICP) Committee members, D We would like to take the opportunity to review our activities from 2018 and consider how we envision the year 2019. Two main events were the focal point for our members during 2018: 1. the ICP Committee Working Weekend, held near Amsterdam in May 2018; and 2. the IBA Annual Conference, which took place in Rome in October 2018. Several construction lawyers addressed topics including: the new 2017 FIDIC forms of construction contracts; anti-bribery and money laundering in the construction sector; joint ventures; forensic schedule analysis; completion and handover of projects; contract termination; and dispute resolution. All speakers invited to participate in conference panels organised by the ICP Committee are required to submit scholarly papers in advance. This requirement was conceived to ensure speakers are prepared and the topics presented are original and interesting. Many of the papers prepared by the speakers attending the IBA Annual Conference 2018 have generated significant interest and favourable comments. As a result, they have been included in this edition of Construction Law International so that the ICP Committee members who could not attend the IBA Annual Conference in Rome may have access to their contents. The panels organised by the ICP Committee were particularly successful as a result of the hard work of the speakers, the chairs of the sessions and the ICP Committee officers. It is our goal to continue to improve the participation of all members of the ICP Committee, which is composed today of more than 1,000 members. We invite all of our members to get involved in the activities and initiatives of our Committee. To that purpose, we intend to organise periodic telephone conference calls with the ICP officers and to send invitations to all ICP Committee members via the ICP-net, in order to publicise the initiatives being developed by our Committee and to encourage all our members to become more active. We would like to include young lawyers in the ICP Committee projects in order to support them in becoming future leaders. We are convinced that the projects and events organised by the ICP Committee will benefit from the open and active participation of all ICP Committee members. Sharing knowledge and experience of construction law will lead to opportunities and definition of best practices. Please help us to ensure the success and inclusion of new members in the upcoming ICP Committee events. We look forward to meeting many of our members at the Working Weekend, which will be held in Athens in May 2019, and at the IBA Annual Conference in Seoul in September 2019.
Helmut Johannsen Singleton Urquhart Reynolds Vogel, Vancouver [email protected]
Jaime Gray Navarro Sologuren Paredes Gray Abogados, Lima [email protected]
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 3 FIDIC AROUND THE WORLD FIDIC AROUND THE WORLD
3. Do FIDIC produce 6. Does your jurisdiction their forms of contract treat Sub-Clause 2.5 of in the language of your the 1999 suite of FIDIC jurisdiction? If no, what contracts as a precondition language do you use? to Employer claims (save for those expressly mentioned Yes, the FIDIC forms are available in in the Sub-Clause)? French, one of the official languages of Switzerland. Certain forms are There is no available case law with available in German and Italian, respect to the interpretation of Sub- which are also official languages. Clause 2.5 under Swiss law. That Given the international nature being said, Swiss law recognises of some construction projects in contractual provisions concerning SWITZERLAND Switzerland, the English-language notices of defects as conditions Laura Azaria and China Irwin version is also frequently used. precedent, as long as they are in LALIVE, Geneva line with the true and common intention of the parties (see the 4. Are any amendments response to question 7). For convenience, in this required in order for the questionnaire, clause references FIDIC Conditions of Contract are references to clauses in the 1999 to be operative in your 7. Does your jurisdiction FIDIC Red Book. jurisdiction? If yes, what treat Sub-Clause 20.1 of the amendments are required? 1999 suite of FIDIC contracts 1. What is your jurisdiction? as a condition precedent No, there are no amendments to Contractor claims for Switzerland. required in order for the FIDIC additional time and/or money Conditions to be operative. (not including Variations)? Most Swiss statutory provisions 2. Are the FIDIC forms of governing construction contracts The enforceability of multi-tiered contract used for projects are not mandatory. Exceptions dispute resolution mechanisms constructed in your include, for example, Article 370 of under Swiss law depends on the jurisdiction? If yes, which of the Swiss Code of Obligations, intention of the parties and must the FIDIC forms are used and pursuant to which the contractor therefore be assessed on a case-by- for what types of projects? may not exclude liability for defects case basis. Any arbitral tribunal or intentionally concealed from the court applying Swiss law is duty- FIDIC forms are frequently employer, or Article 163(3) of the bound to seek the parties’ real used, primarily for international Swiss Code of Obligations, which and common intention. If it is construction projects, with Swiss provides that a court or arbitral established that the parties intended law chosen as the governing law for tribunal must reduce contractual a pre-arbitration or pre-litigation the contract and with Switzerland penalties if deemed to be excessive. procedure to be compulsory, non- selected as the seat of arbitration, However, such mandatory provisions compliance is generally considered regardless of whether any Swiss of Swiss law are not in conflict with to deprive an arbitral tribunal or party is involved in the project or the FIDIC Conditions. court of jurisdiction ratione temporis. whether the project otherwise has A party might not be obliged, a link with Switzerland. however, to follow a pre-arbitration In purely domestic contracts for 5. Are any amendments or pre-litigation procedure, such construction projects in common in your jurisdiction, as conciliation or mediation, if Switzerland, the standard albeit not required in order it is manifest that the opposing conditions prepared by the Swiss for the FIDIC Conditions of party will refuse to participate Society of Engineers and Architects Contract to be operative (see the response to question 11). (Schweizerischer Ingenieur- und in your jurisdiction? If Similarly, a Contractor may not be Architektenverein or SIA) are yes, what (non-essential) obliged to follow the procedure for more widely used. These cover a amendments are common in referring claims to the Engineer for range of contractual relationships, your jurisdiction? determination if a dispute arises at a including contracts between time when the Engineer is no longer employers and contractors, No, there are no common in place. architects and engineers. amendments to the FIDIC Conditions.
4 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 FIDIC AROUND THE WORLD
8. Does your jurisdiction 10. Is arbitration used as for resorting to arbitration under treat Sub-Clause 20.1 of the the final stage for dispute Clause 20 of the FIDIC Conditions. 1999 suite of FIDIC contracts resolution for construction The Court determined the issue as a condition precedent projects in your jurisdiction? in the context of a challenge of a to Contractor claims for If yes, what types of partial award in which the arbitral additional time and/or money arbitration (ICC, LCIA, AAA, tribunal had found that it had arising from Variations? UNCITRAL, bespoke, etc) jurisdiction to hear a case under are used for construction Clause 20, despite the fact that See the response to question 7. projects? And what seats? DAB proceedings had not taken place. Disagreeing with the arbitral Arbitration is the preferred means of tribunal, the Court found that DAB 9. Are dispute boards dispute resolution for international used as an interim dispute proceedings were a prerequisite for construction projects in Switzerland. the initiation of arbitration under resolution mechanism in Both institutional arbitration (under your jurisdiction? If yes, how Clause 20. According to the Court, the arbitration rules of institutions, the use of the term ‘shall’ in Sub- are dispute board decisions such as the International Chamber enforced in your jurisdiction? Clause 20.2 indicated that such of Commerce (ICC), the Swiss proceedings were a requirement Dispute boards are not (yet) widely Chambers’ Arbitration Institution rather than an option; further, the used for domestic construction (SCAI) or the SIA, whose revised term ‘may’ in Sub-Clause 20.4 did projects in Switzerland, and Swiss law rules entered into force on 1 January not qualify the mandatory nature does not include specific provisions 2018) and ad hoc arbitration are of the precondition, and only meant governing adjudication mechanisms, used. The seat would typically that it is open to either party to such as dispute boards. However, be in one of the major cities in initiate DAB proceedings. The Court parties may agree that, before initiating Switzerland, in particular, Bern, recognised, however, that there were court or arbitral proceedings, disputes Geneva, Lugano or Zurich. In the exceptions to the precondition, must be submitted to an alternative real estate sector, a specialised local arising notably under Sub-Clause dispute resolution mechanism, arbitration tribunal has been created 20.8 and the general principle of such as an institutional or informal by the Swiss Association of Real Estate good faith. In determining whether mediation procedure, including Trustees (Schweizer Verband der these exceptions were applicable, such a procedure led by mediators Immobilientreuhänder (SVIT)). the Court recalled that the raison specialised in construction or real In addition, numerous d’être for the introduction of the estate matters. international construction contracts DAB in the FIDIC Conditions was A form of dispute review governed by Swiss law and with to allow for an efficient resolution board issuing non-binding Switzerland selected as the seat of of disputes arising during the recommendations was successfully arbitration are based on the FIDIC construction works, in a manner used to resolve several disputes Conditions, which provide for that would not put the works into concerning the construction of the arbitration under the ICC Rules. jeopardy. In the case before the Gotthard Base Tunnel, one of the Purely domestic disputes in Court, the procedure to constitute largest infrastructure projects Switzerland are more often resolved the ad hoc DAB had begun after the in Switzerland. by courts than through arbitration. completion of the works, at a time Dispute boards are commonly used Article 37 of the widely used SIA when the parties’ positions were in contracts for international Norm 118 provides for disputes to undoubtedly already irreconcilable. construction projects, which are often be submitted to courts, unless Moreover, the Court ruled that governed by Swiss law and provide for agreed otherwise by the parties. where an ad hoc DAB had not been Switzerland as the seat of arbitration constituted 18 months after it was (see the response to question 1). 11. Are there any notable requested, the respondent can no Unlike an arbitral award, a local court decisions longer rely on the mandatory nature decision by a dispute board does interpreting FIDIC contracts? of the DAB procedure to prevent not have res judicata effect and If so, please provide a short the resolution of the dispute by would not be directly enforceable in summary. arbitration. Given the particular Switzerland, even if binding on the circumstances of the case, the parties as a matter of contract. A In an important judgment dated Court concluded that the fact that party may, however, bring a claim 7 July 2014 (case no 4A_124/2014), no DAB proceedings were initiated arising from the failure of the the Swiss Federal Supreme Court did not affect the arbitral tribunal’s opposing party to comply with a (the ‘Court’) analysed whether jurisdiction. decision that is contractually dispute adjudication board (DAB) A recent decision of the Swiss binding between the parties. proceedings are a precondition Federal Supreme Court dated 16
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 5 FIDIC AROUND THE WORLD FIDIC COMMENTARIES
12. Is there anything else March 2016 (case no 4A_628/2015) Laura Azaria is an associate and is also particularly important specific to your jurisdiction China Irwin is Counsel at LALIVE, for international construction and relevant to the use Geneva. They both specialise in contracts, although the case did of FIDIC on projects international arbitration in the not concern a FIDIC contract. In being constructed in your construction and infrastructure sector. this decision, the Court confirmed jurisdiction that you would They can be contacted at lazaria@ the finding that pre-arbitration like to share? lalive.law and [email protected]. steps can be mandatory if so agreed by the parties and addressed for Under Swiss law, general terms the first time the consequences of and conditions (GTCs) agreed non-compliance with a prerequisite between businesses are subject to of arbitration. The Court ruled two stages of review: the review that an arbitral tribunal should of the validity of the GTCs and suspend arbitration to allow the their interpretation (Geltungskontrolle parties to comply with the pre- and Auslegungskontrolle). These arbitral condition, rather than stages of review, as developed in merely awarding damages for Swiss jurisprudence, provide some breach of contract, declaring the protection for businesses that claim inadmissible or dismissing it agree to GTCs proposed by their on the merits. counterparty. Parties agreeing to GTCs in construction contracts subject to Swiss law (including FIDIC forms) should be aware of the special rules of interpretation applicable to GTCs in addition to the general rules of interpretation applicable to all contracts. FIDIC COMMENTARIES
forms put the matter beyond doubt, Definition of fitness for ADDING THE BEST BITS introducing a new requirement for purpose OF FIDIC 2017 TO THE the engineer to act ‘neutrally’ when making determinations. The 1999 form required the works to 1999 FORMS 3.1 Add in the third paragraph be fit for the purposes as defined in the contract. This caused problems Edward Corbett after ‘undertakes’: ‘not to when secondary elements of the Corbett & Co International Construction require approval for a Lawyers, London determination under Sub- work did not function properly. The Clause 3.5 [Determinations] primary purpose of the project may have been defined, but no one will Much has been said about the second and’. define the purpose of each and every editions of the Red, Yellow and 3.5 Red and Yellow only: replace element, rendering the fitness for Silver Books launched by FIDIC in ‘the Engineer shall consult’ purpose obligation less than useful. December 2017. The most obvious with ‘the Engineer shall act So some general wording is needed. comment has been about their size, neutrally and shall consult’. 4.1 Red – add to (c) after almost 50,000 words, which is some 60 ‘Contract’: ‘(and each element per cent longer than the 1999 forms. Prompt notice of variations of the part shall be fit for its Although the 1999 forms were ordinary purpose)’. not perfect, most regular users The 1999 drafters slipped up by Yellow and Silver – add at end seem to agree that 20,000 not explicitly requiring prompt of first paragraph after additional words were not needed notice of instructions that the ‘Contract’: ‘(and each element to fix the issues. This consensus led contractor considers to be of the Works shall be fit for its this author to attempt to cherry- variations. This has led to problems ordinary purpose)’. pick the useful provisions of the with unhappy employers blaming 2017 forms and propose their engineers for inadvertently amendments to add these good incurring additional costs. The Cap on delay damages ideas to the 1999 forms. The notice requirement gives employers amendments apply to all three and engineers an opportunity to It seemed anomalous that the forms unless otherwise indicated. reconsider an instruction. limitation of liability in Sub-Clause 3.3 Red and Yellow – add after the 17.6 should not apply in cases of fraud, second sentence: ‘If the and so on, but that the cap on delay Reasonable profit Contractor considers that an damages should apply regardless. Some contractors exploited this when Any reduction in the number instruction constitutes a the delay damages had reached their of occurrences of the word Variation, the Contractor shall maximum, and the employer had ‘reasonable’ is to be applauded, immediately, and before no realistic option of termination: given the scope for argument that commencing any work related resources were transferred to other, the word introduces. The World to the instruction, give a notice more profitable projects and there Bank introduced a definition of to the Engineer with reasons. was little that the employer could do. reasonable profit into its documents If the Engineer does not 8.7 Add at the end of the first and the Pink Book Multilateral respond within 7 days paragraph: ‘other than in the Development Bank form. confirming, revoking or case of fraud, deliberate 1.2 Add: ‘(e) references to varying the instruction, the default or reckless misconduct reasonable profit shall mean Engineer shall be deemed to by the Contractor’. the percentage of Cost stated have revoked the instruction.’ in the Appendix to Tender.’ 3.4 Silver – add after second Add to Appendix to Tender: sentence: ‘If the Contractor Enforcement of dispute ‘Reasonable profit… 1.2(e)… considers that an instruction adjudication board (DAB) __ per cent or, if none is stated, constitutes a Variation, the decisions 5 per cent.’ Contractor shall immediately, and before commencing any It was a major shortcoming of the work related to the instruction, 1999 forms that there was no clear Approval for engineer’s actions give a notice to the Employer sanction where a party, usually the employer, failed to pay amounts The 1999 forms did not make clear with reasons. If the Employer awarded by the DAB. Despite the whether the employer could insist on does not respond within 7 days obligation to comply set out in pre-approving determinations under confirming, revoking or Sub-Clause 20.4, there was little Sub-Clause 3.5. Many assumed they varying the instruction, the that the party winning the DAB could not, but FIDIC’s guide to the Employer shall be deemed to could do; and thus little incentive 1999 form said otherwise. The 2017 have revoked the instruction.’
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 7 FIDIC COMMENTARIES
for the unsuccessful party to DAB’s Decision] and Sub-Clause giving a second notice, pay. Rights of suspension and 20.5 [Amicable Settlement] shall provided in the case of sub- termination were needed. not apply to this reference. The paragraphs (a) to (e) and (h) 15.2 Add: ‘(g) fails to give effect arbitral tribunal shall have the that the default has continued promptly to a decision of the power, by way of summary or for the notice period’. For DAB in accordance with Sub- other expedited procedure, to Silver, replace (h) with (g). Clause 20.4 [Obtaining the order, whether by an interim or After ‘may’ in the first line of the Dispute Adjudication Board’s provisional measure or an award second paragraph, replace the Decision]’. (as may be appropriate under remaining text of that sentence 16.1 Add after ‘Sub-Clause 14.7 applicable law or otherwise), the with: ‘give 14 days’ notice of his [Payment]’: ‘or fails to give enforcement of that decision.’ intention to terminate the Contract. effect promptly to a decision Thereafter, the Contractor may of the DAB in accordance with forthwith terminate the Contract Sub-Clause 20.4 [Obtaining Mechanism for termination by giving a second notice to that the Dispute Adjudication and cure period effect, provided that in the case of Board’s Decision]’. The 1999 forms were ambiguous sub-paragraphs (a) to (e) and (h) Add in the first and third paragraphs about whether termination the default has continued until the after ‘evidence or payment’: ‘or the required one notice or two: whether date of issue of the second notice.’ Employer has given effect to the termination occurred automatically For Silver, replace (h) with (g). decision of the DAB’. on the 14th day after the notice 16.2 Red and Yellow – add: ‘(h) the of termination or whether a Time-bars Employer fails to give effect second action was required from promptly to a decision of the the party terminating in order to The 28-day notice of claim under DAB in accordance with Sub- complete the termination. The Sub-Clause 20.1 caused a good deal Clause 20.4 [Obtaining the 2017 editions make it clear that of unnecessary misery and dispute Dispute Adjudication Board’s two actions are required. A second due to its black-and-white nature Decision]’. For Silver, it is (g). uncertainty was whether action by and the unintended difficulty and Some employers argued that giving the defaulting party within the 14 discrepancy of its drafting (eg, the a notice of dissatisfaction relieved days to remedy the breach could conflict between the subjective and them of the obligation to give effect stop the termination – in other objective tests and the uncertainty to the DAB decision. It makes sense words, whether the 14 days was a as to what a notice should look like). to put the matter beyond doubt. cure period. The 2017 forms resolve The drafters of the 2017 forms have 20.4 Add in the fourth paragraph this by making it clear that the right unfortunately increased the number after ‘who shall promptly give to termination is lost if the fault is of time-bars from two to five, but they effect to it’: ‘whether or not corrected during the notice period. have also blunted the harsh edges of notice of dissatisfaction has Although there are arguments both two of them by allowing the engineer been given under this Sub- ways as to how these two ambiguities and DAB to waive them in certain Clause’. should have been resolved, the most circumstances. The right of a party to go to arbitration important thing is to resolve them. 20.1 Add to the second paragraph and ask for an immediate award 15.2 After ‘may’ in the first line of after ‘28 days’: ‘and (a) there enforcing the DAB decision has been the second paragraph, replace are no circumstances which much debated due to the language the remaining text of that justify such failure and (b) the of Sub-Clause 20.7. FIDIC issued a sentence with: ‘give 14 days’ Employer can demonstrate memorandum recommending an notice of his intention to material prejudice as a result amendment to the clause; in 2017, terminate the Contract. of such failure’. the clause was further refined. Thereafter, the Employer may 20.7 Replace the clause with: forthwith terminate the ‘In the event that a Party fails to Contract and expel the Appointment of DABs comply with any decision of the Contractor from the Site by A lot of difficulty arose when one DAB, whether binding or final giving a second notice to that party refused to cooperate in the and binding, then the other effect, provided that in the appointment of a DAB member. If Party may, without prejudice to case of sub-paragraphs (a) to FIDIC steps in and nominates the any other rights it may have, (d) and (g) the default has member but the party then refuses refer the failure itself directly to continued until the date of to sign the member’s Dispute arbitration under Sub-Clause issue of the second notice.’ Adjudication Agreement, then 20.6 [Arbitration] in which case 16.2 Add to the first sentence of what? Could the DAB proceed Sub-Clause 20.4 [Obtaining the second paragraph: ‘by and produce a valid decision or
8 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 not? This uncertainty added to the Conclusion problems of the DAB system. The 2017 forms contain some HOW DOES THE NEW 20.3 Add at end: ‘Both Parties and GERMAN CONSTRUCTION each appointed member shall useful ideas and corrections to well- promptly sign or shall be known issues in the 1999 forms. It LAW AFFECT THE deemed to have signed the is a pity that these good points are IMPLEMENTATION OF Dispute Adjudication buried in 50,000 words, of which 20,000 are probably unnecessary. THE 2017 FIDIC Agreement provided by the SILVER BOOK? member, under which: Those wishing to continue to work (i) the monthly services fee with the familiar 1999 forms may Tobias Boecken and Elisa Freiburg and daily fee shall be as nevertheless benefit from parts of Gleiss Lutz, Berlin stated in the terms of the FIDIC’s latest thinking. Claudia Krapfl appointment; and Of course, every project is Gleiss Lutz, Stuttgart (ii) the law governing the different and every contract must be carefully adapted to the project, Dispute Adjudication The new German construction the applicable law and the Agreement shall be the law, which entered into force on circumstances. Careful advice from governing law of the 1 January 2018, provides some specialists and local lawyers should Contract defined in Sub- long-awaited additions to the be obtained before adopting any of Clause 1.4 [Law and German Civil Code (Bürgerliches the suggestions in this article. Language].’ Gesetzbuch or BGB). For the first time, construction law has been codified as a separate area of law Absence of a DAB in the BGB. Thereby, the existing In 1999, the drafters of Sub-Clause Edward Corbett is the Managing law on contracts to produce a work 20.8 considered that if a DAB had Director of Corbett & Co International (Werkvertragsrecht) has been adapted existed and had resigned or their Construction Lawyers in London. He to meet the special needs of private agreements had expired, then it specialises in international construction construction law. should be possible for the parties law, including projects under FIDIC This reform has the potential to to go to arbitration directly. They contracts. He can be contacted at affect the practical implementation probably thought that the clause [email protected]. of standard business terms in would normally apply after the construction projects, such as the work was complete, when quick, 2017 edition of the Fédération interim dispute resolution was Internationale des Ingénieurs less important. In fact, the clause Conseils (FIDIC) Silver Book on – which referred to when a DAB ‘Conditions of Contract for EPC/ was not ‘in place’ due to expiry Turnkey Projects’ (Silver Book ‘or otherwise’ – was invoked in 2017). Prior to the recent the common circumstance when construction law reform, it was no DAB had ever been appointed. already a matter of debate as to Parties to Yellow and Silver Book whether the Silver Book 1999 was contracts were not obliged to compatible with the German law on appoint a DAB until a dispute standard business terms (Allgemeine arose; Red Book parties often did Geschaeftsbedingungen or AGB law) as not comply with the obligation to codified in section 305 et seq of the appoint at commencement. BGB and considered mandatory law It might therefore be a good by state courts. Where terms in the idea to consider limiting the DAB Silver Book are found to be provisions so that they become incompatible with AGB law, they will optional after taking-over has be considered invalid. The question been certified. However, no remains whether the Silver Book change was introduced by the 2017 is compatible with AGB law on 2017 forms. For simplicity, the the basis of the revised German following amendment is construction law. It is therefore recommended: important for the international 20.8 Delete this Sub-Clause. construction law practitioner to have an understanding of the potential conflicts that may arise if German
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 9 FIDIC COMMENTARIES
law is applicable, and to be aware of According to section 307 of the In the paragraphs that follow, we potential opportunities to escape the BGB, provisions in standard business will provide a few examples related ‘sword of Damocles’ of AGB law. terms are ineffective if, contrary to to the new German construction the requirement of good faith, they law describing the possible practical unreasonably disadvantage the other implications of this mechanism The FIDIC rules are standard party to the contract. In case of doubt, under German law. business terms under an unreasonable disadvantage is to be German law assumed if a provision is not Clause 13 of the Silver For more than 60 years, FIDIC has compatible with the essential principles of the statutory provision Book 2017 (variations and published model contracts, which remuneration for additional have become the main standard for from which it deviates or limits indispensable rights or duties intrinsic works) may be considered international construction projects. ineffective by German courts In 1999, FIDIC launched its Silver to the contract to such an extent that Book and in 2017, it published a attainment of the purpose of the Under clause 13 of the FIDIC new, second edition. It addresses contract is jeopardised. Silver Book 2017, variations may ‘Engineering, Procurement and One might consider that section be initiated by the employer at Construction’ and turnkey projects 307 of the BGB does not apply to any time before the taking-over for a fixed price, to be completed by a the Silver Book 2017 by analogy to certificate for the works is issued. fixed date. It is particularly popular in section 310 of the BGB. According The contractor is bound by each the area of plant engineering, where to this provision, section 307 of the variation and is obligated to all parties involved have a strong BGB does not apply to contracts in execute it with due expedition. interest in fixed prices and fixed which the entire General Conditions Within 28 days, the contractor shall dates being observed. In the 1999 of Contract relating to the Execution submit to the employer a proposal edition, the contractor bore the main of Construction Work (Vergabe- for adjustment of the contract price risks of construction and planning, und Vertragsordnung für due to the variation, with supporting while the 2017 edition strives for a Bauleistungen – Teil B (VOB/B), particulars. The rate for the varied more balanced solution between the the German rival to the FIDIC remuneration – if the contract contractor and employer. Despite Books) are included without does not contain a respective these changes in risk allocation, quite material deviation as to their schedule – shall be derived from a number of provisions in the Silver content. However, this is unlikely to the cost plus profit of executing the Book 2017 (still) differ significantly be accepted by German courts for work. The term ‘costs’ covers the from the respective rules of the BGB. the simple reason that the provision expenditures reasonably incurred Typically, it is the employer who relating to the VOB/B was included by the contractor in performing the requires the application of FIDIC specifically because the VOB/B, variation (compare to Sub-Clause clauses. If the parties agree on a overall, is deemed to provide a fair 1.1.16 of the Silver Book 2017). contract based on the Book 2017, allocation of risks for both parties to In contrast to these Silver Book and at the same time provide for the contract. Because the Silver provisions, the new section 650b of the application of German law, the Book 2017 undertakes an allocation the BGB provides for a consent- AGB law will apply. The clauses of risks that differs substantially based model for variations. In the from the FIDIC Silver Book 2017 from the allocation of risks under first step, the parties are obligated are considered to be standard the VOB/B, it appears unlikely that to attempt to reach an agreement business terms in the meaning of a German court would privilege it on the requested changes and section 305(1) of the BGB because by applying section 310 of the BGB remuneration issues. Only if the they are pre-formulated for more by analogy. parties cannot reach such an than two contracts and presented Therefore, the clauses of the agreement within 30 days will the by one party (the user) to the other Silver Book 2017 – if the contract is employer be entitled to issue a party upon entering into the governed by German law – always unilateral variation request. The contract. By contrast, the AGB law have to be measured against the law does not provide for exceptions does not apply to specific clauses if standards of the AGB law and to the 30-day negotiation period, those clauses were negotiated accordingly against the substantive and exceptions are likely to be between the parties with respect to provisions of the BGB’s construction accepted by courts only in very the individual circumstances of the law. If the clauses are found to be limited and severe circumstances. contract, or were at least seriously ineffective on the basis of section If the changes requested put up for negotiation by the user 307 of the BGB, the invalid clause unilaterally are necessary for the (Individualvereinbarung), even if will be substituted by the respective successful performance of the the rest of the contract consists of comparable provision of the BGB works, the contractor is obliged to unilaterally formulated provisions. (see section 306(2)). perform them. In all other cases, it
10 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 depends on whether it is deemed the employer to instruct the strict (and very short) period of to be reasonable to require the contractor to submit a revised notification will be considered valid contractor to perform the programme with revised methods under AGB law because it will mainly requested works. With regard to in order to expedite progress and be to the detriment of the contractor the remuneration for such complete the work within the and not the employer as the user of additional works, section 650c of relevant time for completion. the standard business terms that has the BGB contains detailed Given the related risks for delay to raise claims at such short notice. provisions to ensure adequate liability, such an extensive right to During the execution of the works, remuneration based on actual costs instruction would probably be the contractor needs to focus on plus a reasonable markup for considered ineffective under AGB performing its obligation under the indirect costs, including profit, as law, with the consequence that contract and will not have the time well as to ensure the immediate sections 650b and 650c would be or personnel to work on liquidity of the contractor. applicable instead (section 306(2) documenting and justifying possible Accordingly, it can be reasoned of the BGB). claims in detail within less than a from a German law perspective month. This appears to be a that the Silver Book 2017 provision particular burden for the contractor, on variations (the remuneration Clause 20 of the Silver Book which German courts might well notwithstanding) disadvantages 2017 (time limit for raising consider unwarranted. the contractor, who cannot rely on claims) may be considered a 30-day negotiation period before ineffective by German courts Is it possible to escape the being obliged to execute the Clause 20 of the Silver Book 2017 variation request. It can be argued ‘sword of Damocles’ of provides for a very short period to German AGB law? that the negotiation period as give notice of a claim: just 28 days contained in section 650b of the after the claiming party became How (and to what extent) do parties BGB is part of the guiding aware, or should have become to a contract have a chance to escape principles of the new construction aware, of the event or circumstance. the ‘sword of Damocles’ of AGB law and therefore cannot be Otherwise, the party shall not be law, without having to change the waived by standard business terms. entitled to any claims in regard to FIDIC provisions themselves? When The BGB did not contain a this event or circumstance and the looking for solutions, it must be provision on the right to request other party shall be discharged from borne in mind that section 305 et variations prior to the revision of any liability in connection with the seq of the BGB generally constitute the German construction law. respective event or circumstance. jus cogens in German law, even when Section 650b of the BGB This duty applies to the employer the standard business terms are used specifically includes the 30-day and the contractor, while under the in a business-to-business context. negotiation period to protect the Silver Book 1999 this duty had been Accordingly, the German Federal contractor from unwarranted limited to the contractor. Court of Justice has held that these unilateral variation requests. The new German construction provisions cannot be excluded by Therefore, it is likely that German law upholds the established statute a contract clause providing that courts would consider Clause 13 of limitations (see section 195 et section 305 et seq of the BGB will of the Silver Book 2017, which seq, as well as 634a of the BGB – the not apply. allows for an immediate unilateral usual time period for being entitled One option for escaping AGB right to request variations, to be to raise claims ranges between three law might of course be the choice incompatible with AGB law. and five years), but does not contain of non-German law to govern the Another problem in the Silver any further limitations for raising contract, in accordance with Book 2017 is the employer’s claims that would be comparable to Article 3(1) of the Rome I extensive right to insist on changes the period of 28 days as provided for Regulation. While this is an option to the sequence or timing of the in the Silver Book 2017. in an international context, it is works’ execution. Section 650b of The clause in the Silver Book 1999 not possible in a purely German the BGB intentionally excluded was held to be seriously prejudicial context. As provided for in Article these far-reaching instruction to the contractor because of the 3(3) of the Rome I Regulation, rights, so as not to restrict the strict one-sided limitation for raising where all elements relevant to the contractor’s freedom to arrange claims and therefore ineffective situation at the time of the choice the details of works. In the Silver under AGB law. While under the of law are located in a country Book 2017, Sub-Clause 8.3 provides Silver Book 2017 there is no longer other than the country whose law for a detailed programme that the an imbalance between the has been chosen, the choice of the contractor shall submit to the contractor and the employer, the parties shall not prejudice the employer; Sub-Clause 8.7 enables question remains whether such a application of provisions of the
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 11 FIDIC COMMENTARIES USE AND MISUSE OF EXPERT EVIDENCE law of that other country that Of course, it remains to be seen Notes cannot be derogated from by whether arbitral tribunals will 1 FIDIC, Conditions of Contract for EPC Turnkey Projects, 2nd edn 2017. agreement. Accordingly, in an embrace this view. The risk remains 2 Cf Kapellmann/Messerschmidt/von entirely German situation the that arbitral tribunals might find Rintelen, VOB/B, 6th edn 2017, s 1, parties cannot escape German jus this type of agreement between the para 101c. cogens, such as AGB law, merely by parties to be ineffective due to the 3 Müller-Helle, RdE 2014, 53 (54); Hök, ZfBR choosing another law to govern AGB law’s jus cogens character. 2014, 627 (628 et seq). 4 Bamberger/Roth/Hau/Poseck/Voit, their contract. However, even with this risk in BeckOK BGB, 46th edn 2018, s 650b, mind, choosing an arbitration paras 41, 44. clause based on German law 5 Kniffka/von Rintelen, Ibr-online- Might arbitration clauses without AGB law can have Kommentar Bauvertragsrecht, 20th provide a solution? significant advantages for the edn 2018, s 650b, para 246 et seq; Abel/ Schönfeld, BauR 2018, 1 (12). Another way to avoid the applicability parties. If the construction project 6 Kus/Markus/Steding, 16 ICLR 1999, 533 of AGB law – without having to has a connection to Germany – be (547 et seq). forfeit the benefits of German law it because one or more of the 7 BGH NJW 2014, 1725 (1728). – might be through an arbitration parties are German entities or 8 Pfeiffer, NJW 2012, 1169 (1170); Vorwerk/ because the construction project Wolf/Wilske/Markert, BeckOK ZPO, 29th clause. The argument can be made edn 2018, s 1051, para 6; Kondring, ZIP that by choosing arbitration, the is located in Germany – the parties 2017, 706 (709). parties to a contract are entitled to will be able to base their contract 9 MüKo/Münch, ZPO, 5th edn 2017, s 1051, exclude sections of the BGB that on the internationally accepted paras 16, 20; Valdini, ZIP 2017, 7 (10). would otherwise (by state courts) FIDIC Silver Book, but embedded be considered jus cogens, at least in in the familiar German legal a business-to-business context. This order. At the same time, there will follows from section 1051(1) of the be at least a fair chance that an German Code of Civil Procedure arbitral tribunal will respect the (Zivilprozessordnung or ZPO), which arbitration clause excluding AGB provides that ‘[t]he arbitral tribunal law for the purposes of a dispute is to decide on the matter in dispute between the parties. in accordance with the statutory provisions that the parties have Conclusion designated as being applicable to the content of the legal dispute’. We have demonstrated that Tobias Boecken is a partner at Gleiss This can be read to mean that the despite the revision of the German Lutz, Berlin, and can be contacted at parties are not bound to choose one construction law and the reform [email protected]. legal order in its entirety, but are free of the Silver Book, there are Silver Claudia Krapfl is an associated partner at to agree on specificprovisions only. Book 2017 clauses that are still Gleiss Lutz, Stuttgart, and can be contacted Section 24.1 of the 2018 German incompatible with the provisions at [email protected]. Arbitration Institute (Deutsche of the new German construction Elisa Freiburg is an associate at Gleiss Institution für Schiedsgerichtsbarkeit or law and therefore, due to AGB law, Lutz, Berlin, and can be contacted at DIS) Arbitration Rules contains a might be ineffective. [email protected]. similar provision. In order to ensure the While this interpretation of effectiveness of the Silver Book section 1051 of the ZPO is not 2017 in a German law context, we compatible with Article 3(3) of the suggest that parties should agree Rome I Regulation, the Rome I on an arbitration clause, providing Regulation does not apply to that the arbitral tribunal is to apply arbitral tribunals but only to German law, but excluding the national courts. Furthermore, the AGB law. Whether this will be parties’ right to empower arbitral accepted by German courts tribunals to decide ex aequo et bono remains to be seen. For now, it (see section 1051 (3) of the ZPO) appears to be the only viable option should also include the possibility if Silver Book 2017 provisions are of agreement on a nuanced choice contained in a construction of law. contract based on German law.
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by the expert can be relied upon: By comparison, the law in the US USE OF EXPERTS (1) whether the theory or method is often perceived to be less IN COMMON LAW can be empirically tested; (2) prescriptive. The FRE neither whether the technique has been formally defines the duties of an JURISDICTIONS subjected to peer review or expert witness nor contains any Kenneth Juan Figueroa publication; (3) whether potential specific written obligation for the Foley Hoag, Washington, DC error rates can be controlled; and expert to be independent. As one (4) whether the proposed methods expert consultancy has pointed are generally accepted within the out: ‘This distinction between the The role of the party- specific community. Under the UK UK and US jurisdiction has appointed expert under the jurisdiction, there is no formal test prompted views of greater expert common law approach for determining the admissibility partisanship in the US.’7 of expert evidence, but various Given the different perspectives In common law jurisdictions, the consultation papers have set concerning experts in the UK and fundamental purpose of experts and guidelines to ensure the reliability US, one observes a greater expert witnesses is to assist the client of expert testimony, at least in incidence of experts ‘double or the trier of fact (be it a judge, criminal proceedings.4 hatting’ in US jurisdictions – that jury or arbitrator) to understand the The laws regarding the role of is, the advisory experts directly technical issues at hand. To qualify expert witnesses under the UK and involved in the independent as an expert, one must possess US jurisdictions are considerably analysis of the project often also sufficient knowledge and expertise, different in three notable ways: serve as the testifying expert. This gained either by formal study or by degree of impartiality of expert is usually frowned upon in the UK, experience in a specialised field. witnesses, use of depositions and where one sees a clearer distinction There are, in effect, two principal expert witnesses’ ability to opine between the two expert roles. roles for experts. First, there is the on the ‘ultimate issues’. Under the advisory expert who is retained by UK jurisdiction, more measures the client or client’s counsel to are in place to remind experts that Depositions assist in understanding technical their primary mandate is ‘to serve aspects of the client’s case and, in Under the US Federal Rules of Civil the Courts and not their fee Procedure (FRCP), Rule 29, any this sense, plays an important role payers’. In general, US courts building or better substantiating a party may take the testimony of any appear to be more relaxed in person by the form of oral8 or written9 client’s affirmative case or defence. relation to the conduct of experts. There are no formal rules with deposition unless the court orders respect to advisory experts and the otherwise. If the deponent fails to client and client’s counsel must Independence and impartiality attend, they could be compelled 10 rely on their own due diligence in of the expert witness to do so by subpoena. This rule vetting appropriate experts for applies to both fact and expert each case. Second, there is the Rules governing the conduct of witnesses. The use of a deposition testifying expert who presents their experts seem to be better developed is considered an important expert opinion to the trier of fact. in the UK than the US and have component of discovery in the US Testifying experts are subject to increased over the years. In the legal system, as it enables lawyers to express requirements concerning UK, for example, in cases such as determine the strength of the other 5 their qualifications. In the United ‘The Ikarian Reefer’ and Davies v side’s evidence, which may lead to 6 Kingdom, this requirement is set Magistrates of Edinburgh, the duties early settlement or determine trial out in the Civil Procedure Rules of the expert are set out clearly. tactics. (CPR), Practice Direction (PD) Not only does the appointed expert In comparison, the use of 35;1 and in the United States, under have an overriding duty to the court, depositions in civil proceedings is the Federal Rules of Evidence but they must remain independent uncommon in the courts of the UK (FRE), 702.2 and impartial and identify in their (although possible under certain In addition, both jurisdictions testimony any opinions held that do circumstances). Unlike the US have guiding principles for not support the case put forward system, any cross-examination of an admissibility of evidence. In the by the party who appointed them. expert must be conducted under US, under FRE 703, experts may In addition, under the CPR PD oath (or affirmation) in front of a rely on data published by others. 35.10(2), at the end of an expert’s judge. The expert must attend at Three key cases, known as the report, they must include a statement the agreed trial date, preferably Daubert trilogy,3 define criteria that they are aware of their duties voluntarily but under subpoena, if that may be applied to determine and have fulfilled them, and will necessary. Any ambiguity or whether investigations undertaken continue to do so. obfuscation within the expert’s
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report will be highlighted by the use of experts under UK and US defences much better than the legal counsel (barrister) during law. The comparison pertains to court and, at the outset, will be cross-examination and may prompt court proceedings, ‘but similar better immersed in the facts of the the judge to place less weight on arrangements apply to expert case. Parties know where the that evidence.11 evidence in Arbitration proceedings problems lie, especially with respect (although there is sometimes a to the particular technology or greater flexibility of procedure in other specialised field that makes Ultimate issues arbitration than in court)’.14 the appointment of an expert The US and UK jurisdictions have desirable. As such, they will be adopted different approaches on better placed to select the experts The adversarial nature of the with the appropriate expertise. whether the expert can opine on common law approach issues that the judge (or jury or Second, competing experts, who arbitrator) is ultimately required The principal difference between will be open to cross-examination, to decide. In the US, FRE 704(a) the common law approach and the help to provide the court or permits the expert to opine on civil law approach to experts is the tribunal with different sets of view the ‘ultimate issue’, as it explicitly adversarial nature of common law that may better enable it to make states that ‘an expert’s testimony dispute resolution. The expectation its own determination. Relying on is not objectionable just because it and practice (indeed, the due a single expert risks that the expert embraces an ultimate issue’. process rights of the parties) in may not be the most appropriate In contrast, experts under the common law jurisdictions is that for the case or may have flawed UK jurisdiction are strictly each party is entitled to choose premises in their analysis, which forbidden from opining on the its own experts. Court-appointed may not be adequately tested ultimate issue. Experts must follow or tribunal-appointed experts are during a proceeding. the code of conduct and not stray not the norm and are considered Party-appointed experts also have from the instructions given by their appropriate only in extreme cases. certain disadvantages. As FTI lawyers. In the event of digression, There are certain advantages to Consulting has pointed out, the the expert could face possible costs party-appointed experts. The common law approach gives the sanctions.12 In the words of Lord common law approach, of course, ‘parties the opportunity to appoint Cooper, a former head of the envisages party-appointed experts not the more experienced expert in judiciary in Scotland: ‘Expert as consistent with the due process their field of practice but an expert witnesses, however skilled or right of each party of presenting who may be willing to best support eminent, can give no more than their case – a notion inconsistent the party’s view. Since experts are evidence. They cannot usurp the with an inquisitorial tribunal or appointed and paid on the basis of a functions of the jury or the Judge court. However, beyond that, party- contractual relationship, some sitting as a jury.’13 appointed experts have certain unfortunately may adopt the position The table below summarises key practical advantages as well. First, of a “Hired Gun,” advocating on similarities and differences in the parties know their case and behalf of the party which appointed
The similarities and differences between approaches of expert use in the UK and US15
Similarity/ Issues UK US Difference Similarity Purpose behind the use of expert Expert evidence is to furnish the judge or jury Expert evidence is admissible on the basis that witnesses with necessary scientific criteria for testing the the knowledge will help the trier of fact to accuracy of their conclusions. understand the evidence or to determine a fact at issue. Similarity Qualification of expert witnesses Expert witness is qualified to give evidence, An expert witness is qualified by knowledge, where the court itself cannot form an opinion skill, experience or education.17 and special study, skill or experience is required for the purpose.16 Similarity Admissibility of evidence Expert evidence must be provided in as much Expert testimony to be based on sufficient detail as possible in order to convince the judge facts, data or products of a credible source of that the expert’s opinions are well founded.18 test and tried principles and methods.19 Difference Conduct of expert witness Expert’s ‘duties to the Court override any Expert’s duty is not formally defined under the obligation to the person from whom they have FRCP/Evidence. received instructions or have been paid by’.20 Difference Depositions Expert evidence is examined before the judge Expert evidence can be compelled to (or arbitrator). deposition. Difference Ultimate issues Expert opinion on the ultimate issue is not Expert opinion on the ultimate issue is admissible. admissible.
14 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 them in an attempt to advance that nominated several candidates, construction, preparing a written party’s contentions’.21 As we have which included university professors report on patent infringement seen, the UK in particular attempts who taught or performed research and validity issues and testifying at to mitigate against this risk by in the technology at issue and trial.26 Timing is also important. In imposing explicit standards of people with experience in the Tessera, the Rule 706 expert’s objectivity and impartiality on relevant industry. Each candidate report was due after the party experts. The US, while less stringent, was then interviewed collectively by experts’ reports. This timing has more informal pressures borne the parties. Each side then allowed the neutral expert to out during depositions and cross- nominated a proposed candidate consider and respond to the examination where evidence of an for selection by the court. parties’ experts and may have expert’s partiality or ‘hired gun’ After the court selects an expert, assisted the Rule 706 expert by status is often quickly brought to the court and the parties must providing examples of the detail light. Related to this disadvantage is address a host of issues related to and structure of expert reports.27 that because nearly all areas of working with the expert, including Another issue that has to be dealt technical or legal expertise are what duties to assign to the expert; with is whether the court- subject to interpretation, it is not what materials to provide to the appointed expert will testify and, unusual to have experts present well- expert to review; how to if so, how that testimony and cross- founded analyses that result in communicate with the expert; how examination will be structured. completely disparate world views and to adjust the case schedule to There are several possibilities, conclusions. The resulting permit time for the expert’s report each of which raises important conundrum requires the court or and deposition; how to ensure that questions regarding the expert’s tribunal to make its own the expert understands the preparation and the effect the determinations or find other ways to intricacies of law and procedure; testimony will have: reach a middle ground. These how to prepare the expert to testify • The expert could provide narrative include the use of a court-appointed at deposition and at trial; what to testimony without assistance from expert and hot-tubbing. tell the jury about the expert’s counsel. This approach gives the neutrality; and even how to fairly expert freedom to present their split the expert’s bill.24 views independently, but may lack Court-appointed experts in A key question in designing these sufficient clarity and structure if 22 common law jurisdictions procedures is how to replace all of the expert is not an experienced In the UK, Civil Procedure Rule the instructions and help that a presenter. 35.7 provides the court authority to party expert typically gets from the • Alternatively, the expert could direct that evidence be given by a respective party counsel. Who will be examined by counsel for the single joint expert. Similarly, in the help the independent court- party that their opinion supports. US, FRE 706 (‘Rule 706’) permits a appointed expert understand the This approach can add clarity and court, on a party’s motion or on its legal standards for anticipation or structure, but the fact-finder might own, to appoint an expert witness to prepare claim charts? Who unfortunately perceive the expert as make findings and testify at trial on prepares and defends the court- aligned with the examining party. certain issues. appointed expert at deposition or • The expert could testify before the 25 The use of a court-appointed at trial? parties’ experts. This approach can expert brings its own host of issues, One possibility is for the parties ensure that the fact-finder’s first beginning with the selection of an to engage a third-party attorney as impressions come from an unbiased expert. The UK’s CPR Rule 35.7 in the expert’s counsel. But this adds source, but may leave the expert the first instance requires that the another layer of expense and without an opportunity to respond parties agree on the joint expert, complication to the case. Another fully to the parties’ experts. something that may be difficult to possibility is using a combination • Alternatively, the expert can do. If the parties cannot agree, the of court orders, scheduling and testify after the parties’ experts. court may select an expert from a advice by counsel for the parties. This approach ensures that the list of candidates identified by the The Tessera case provides a good expert can fully respond, but parties or in any other manner the example of this approach. might raise a concern that the court directs. In US federal court, Following the expert’s fact-finder will perceive that as the while Rule 706 allows a court to appointment in Tessera, the court ‘final word’ on an issue. appoint an expert ‘of its own issued a detailed written order It has been commented that ‘[a] choosing’, in practice, a court will pursuant to Rule 706(b) informing court-appointed expert carries a often solicit nominations for a Rule the expert of his duties. Those neutral status, unaligned with the 28 706 expert from the parties.23 In the duties included preparing a litigants’. Such expert testimony Tessera case, for example, each side written report on claim can be highly persuasive to the jury
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or trier of fact and the opinions instances in which the traditional unwilling to modify their positions expressed in the expert’s report adversarial process has failed to or where the relationship between tend to be extremely influential and permit an informed assessment of experts is such that it unfairly outcome determinative. Indeed, this the facts. We found no evidence of favours one expert over another. influence led to legal challenges to general disenchantment with the An example is a case where one Rule 706 court-appointed experts in adversarial process by judges who expert is the former professor of the US, in which parties have argued had made such appointments. the second expert. that the practice impinges on the • Parties rarely suggest appointing Hot-tubbing and other innovative constitutional right to a jury trial.29 an expert and typically do not solutions are discussed in further While the US Supreme Court has participate in the nomination of detail in a separate article. However, never ruled on the issues, in 2009, the appointed experts. it bears keeping in mind that the US Court of Appeals for the Federal • The opportunity to appoint an innovative use of experts is largely Circuit rejected this argument and expert is often hindered by failure a result of courts and tribunals recognised the constitutionality to recognise the need for such attempting to reach a middle of Rule 706.30 The court found assistance until the eve of trial. ground where two party-appointed that compliance with Rule 706 • Compensation of an expert experts have provided extreme or and cautionary jury instructions often obstructs an appointment, diametrically opposed conclusions. prevented any encumbrance of the especially when one of the parties None of these innovative solutions, plaintiff’s due process rights.31 is indigent. however, is perfect and they raise Nevertheless, given the concerns • Judges report little difficulty issues that may undermine their and complications that arise with in identifying persons to serve effectiveness and, in extreme cases, court-appointed experts, in the US as court-appointed experts, perhaps even undermine the at least, courts have noted that largely because of the judges’ parties’ rights. their use should be reserved for willingness to use personal and exceptional cases in which ‘the professional relationships to aid ordinary adversary process does the recruitment process. Conclusion 32 not suffice’. Court-appointed • Ex parte communication between The common law approach places a experts are very rarely used and are judges and appointed experts high value on the adversarial nature most commonly used in ‘unusually occurs frequently, usually with the of dispute resolution. In this complex’ cases with ‘starkly consent of the parties. context, the use of party-appointed 33 conflicting expert testimony’. In • The testimony or report presented experts is a cornerstone of the appointing an independent expert by an appointed expert exerts a parties’ rights and strategy. However, 34 in the Tessera case, the court strong influence on the outcome misapprehension concerning the 36 commented that ‘the complexity of of litigation.’ integrity and independence of the technology at issue in this case In conclusion, while courts experts under this approach has will be particularly difficult and and tribunals have the option been frequently raised. For instance, confusing for the jury to of appointing experts, their use in Finkelstein v Liberty Digital Inc,37 35 understand’. The court also raises certain issues that make it an the judge highlighted that ‘[t]hese pointed to ‘stark conflicts’ in the imperfect solution to the problem of starkly contrasting presentations parties’ positions. disparate party-appointed experts. have, given the duties required of The Federal Judicial Center Beyond court-appointed experts, this court, imposed upon trial conducted a small-scale empirical certain common law jurisdictions, judges the responsibility to forge study on this topic and summarised such as Australia and the UK, a responsible valuation from what its findings as follows: expressly permit courts to order is often ridiculously biased ‘In brief, we found that much concurrent expert testimony, “expert” input.’ of the uneasiness with court- otherwise known as ‘hot-tubbing’. Scholars have observed that the appointed experts arises from In the US, courts also occasionally ‘chief unsustainable myth is the the difficulty in accommodating use concurrent testimony. This complete independence of the such experts in a court system that method is commonly used in expert’.38 The role of expert values, and generally anticipates, international arbitration as well. witnesses in common-law adversarial presentation of While some judges and arbitrators jurisdictions has been described as evidence’. have claimed that this procedure ‘ambiguous’39 and involving The Federal Judicial Center also can be useful, counsel are often ‘unresolved contradictions’.40 made the following specific findings: reticent in permitting hot-tubbing, These concerns are unavoidable. • ‘Judges view the appointment of an given the lack of control that it Notwithstanding formal and informal expert as an extraordinary activity implies. Its effectiveness can also requirements of impartiality and that is appropriate only in rare be undermined where experts are objectivity of experts, the fact of the
16 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 matter is that because they are party- com/~/media/Files/apac-files/insights/ 35 Ibid. selected, they will have been chosen white-papers/the-evolution-of-expert- 36 Federal Judicial Center, ‘Court-Appointed witness-law-under-uk-and-us-jurisdiction. Experts: Defining the Role of Experts for espousing a certain world view pdf accessed 5 November 2018. Appointed Under Federal Rule of or approach to their area of 15 Ibid. Evidence 706’ (1993) www.fjc.gov/sites/ expertise that most closely aligns 16 Lord Mansfield, Folkes v Chadd (1782) default/files/2012/Experts.pdf accessed with the parties’ case. As such, no 3 Doug 157. 5 November 2018 pp 4–5. matter how objective an expert is, 17 FRE 702. 37 Harold Finkelstein and Marilyn Finkelstein 18 UK Register of Expert Witnesses, Factsheet v Liberty Digital Inc [2005] CA No the expert’s opinion will always be 02: Expert Evidence www.jspubs.com/ 19598 (quoted in the FTI Consulting partial. In the author’s view, this experts/fs/02.pdf accessed 5 November Report www.fticonsulting-asia.com/~/ should be accepted and embraced. 2018. media/Files/apac-files/insights/white- Accordingly, parties’ counsel should 19 FRE 702 (b–d). papers/the-evolution-of-expert-witness- be prepared to test the expert’s 20 Civil Procedural Rules 35.3(2). law-under-uk-and-us-jurisdiction.pdf 21 FTI Consulting Report, p 2 www. accessed 5 November 2018). analysis for flaws and conscious or fticonsulting-asia.com/~/media/Files/ 38 Bartlett (1994) the Expert ‘independence unconscious bias. The judge, jury or apac-files/insights/white-papers/the- and parties’ ownership’. Cited in the arbitrator must be ready to take the evolution-of-expert-witness-law-under- Nicholas Gould, Fenwick Elliott Report: expert’s opinion with a large grain uk-and-us-jurisdiction.pdf accessed World Launch: ICC Expert Rules-- A User of salt and also be ready to test the 5 November 2018. Perspective: When and How to Involve 22 The following article was very helpful Experts in International Arbitration expert, perhaps through methods on this topic. Philip Woo, ‘Court- Proceedings and other ADR Processes, p such as hot-tubbing or other Appointed Experts – A Powerful but 1 (January 2015) available at https://www. approaches. In the author’s view, Rarely Used Tool’, (‘Sidley Report on fenwickelliott.com/sites/default/files/ this testing of experts has greater Court-Appointed Experts’) (2015) www. ng_-_icc_launch_of_expert_rules.pdf. advantages then relying on a single law360.com/articles/652686/court- 39 A Shilston (1992) ‘Some reflections on appointed-experts-a-powerful-but-rarely- the role of the expert witness’ 58, JCIArb court or tribunal appointed expert. used-tool accessed 5 November 2018. 4-251-258. Cited in the Fenwick Elliott 23 While Rule 706 allows for a court-appointed Report, p 1. expert, it provides little guidance on when 40 A Speaight (1996) ‘Expert evidence – to use such an expert, how to select one seven pillars of wisdom, but are they or to how to work with the expert during sound?’ 62, JCIArb 4-269-271. Cited in Notes litigation and at trial. Sidley Report on the Fenwick Elliott Report, p 1. 1 See https://www.justice.gov.uk/courts/ Court-Appointed Experts. procedure-rules/civil/rules/part35/ 24 Sidley Report on Court-Appointed pd_part35 accessed 26 February 2019. Experts. 2 See www.law.cornell.edu/rules/fre 25 Ibid. accessed 5 November 2018. 26 Ibid. 3 Daubert Trilogy: Daubert v Merrell Dow 27 Ibid. Pharmaceuticals, Inc, US 579 (1993), 28 Ibid. General Electric Co v Joiner, 522 US 136 29 See Monolithic Power Systems, Inc v O2 Micro Kenneth Juan Figueroa is a partner at (1997) and Kumho Tire v Carmichael, 526 Intern Ltd, 558 F.3d 1341, 1348 (Fed Cir Foley Hoag, Washington, DC. He can be US 137 (1999). 2009) (‘Such experts tend to become in the contacted at [email protected]. 4 Eg, in 2009, the Law Commission eyes of the jury anointed, not appointed’ – The author would like to thank Jean Lee published a consultation paper titled quoting 1973 letter in the Congressional ‘The Admissibility of Expert Evidence in for valuable research assistance. record). In addition, the plaintiff in the Criminal Proceedings’, and in January Tessera case echoed this concern: ‘If the 2013, the UK Ministry of Justice published Court has something more than [the ‘Report on the Implementation of expert providing a neutral technology Law Commission Proposals’. See FTI tutorial to the jury] in mind, such as the Consulting Report, p 2. possibility of an expert providing testimony 5 Ikarian Reefer 1993 2 LILR 68, 81–82. on substantive legal issues in the case, Cited in the FTI Consulting Report, p 2. Tessera’s concerns about potential bias 6 Davies v Magistrates of Edinburgh 1953 SC would increase considerably.’ Tessera, Inc 34, SLJ 54. Cited in the FTI Consulting v Adv Micro Devices, Inc et al, No 4:05-cv- Report, p2. 4063 Plaintiff Tessera, Inc’s Brief Re Case 7 FTI Consulting Report, p 2. Management Schedule and Appointment 8 FRCP, r 30. of Court Expert Order (ND Cal 2 April 2 9 FRCP, r 31. 2007), ECF No 426. 10 FRCP, r 45(B). 30 See Monolithic Power Systems, 558 F3d 11 FTI Consulting Report, p 3. 1341, 1348. 12 Philips and Others v Symes and Others 2 31 See n 24 above. [2004] EWC 2330 (Ch), [2005] 4 ER 519. 32 In re Joint E & S Dists Asbestos Litig., 830 Cited in FTI Consulting Report, p 3. F Supp 686, 693 (EDNY 1993). 13 Ibid, 14, p 40. Cited in FTI Consulting 33 Oracle America, Inc v Google Inc, 2011 US Dist Report, p 3. Lexis 129766 (ND Cal 9 November 2011). 14 FTI Consulting, ‘The Evolution of 34 Tessera, Inc v Adv Micro Devices, Inc et al, Expert Witness Law Under UK and US No 4:05-cv-4063 Order (ND Cal 26 March Jurisdiction’ www.fticonsulting-asia. 2012), ECF No 984.
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exclusive power to appoint an develop legal positions regarding THE CIVIL LAW APPROACH expert ensures that the ongoing technical, economical or similar – COURT-APPOINTED process to appoint the expert is statements in relation to a dispute. not delayed by the parties’ This leads to a conflict in EXPERTS inability or unwillingness to agree procedural law about whether Christian Johansen on an expert. evidence from party-appointed Bruun & Hjejle, Copenhagen experts is permissible evidence, including the question of whether Court-appointed experts, statements and conclusions from The general rule: civil law party-appointed experts party-appointed experts can be and expert witnesses submitted to a court-appointed The general rule on expert witnesses expert as basis for their report. is that experts are court-appointed, Court-appointed experts In some jurisdictions, the rule is and this role of appointment and that statements from a party- the function of experts are governed The use of experts is closely related appointed expert are only admissible by legislation. By legislation, parties to the concept of burden of proof. as evidence if the report is obtained in court (or arbitral) proceedings The party with the burden of before proceedings are initiated. can request the court or tribunal proof is in need of an expert to However, this will often lead to an to appoint one or more experts to explain technical issues and give unfair situation because an expert give expert statements on specific an opinion to assist the court report is not known to the other aspects of the dispute. and will, in the civil law system, party until after proceedings are In general, the role of a court- generally ask for expertise on initiated, thus preventing the appointed expert is to answer specific matters with a request to other party from presenting its specific questions raised by the the court to have a qualified and own expert. parties on matters relevant for the neutral expert appointed. As a result, new rules were court’s decision on technical, Parties usually have the adopted in Denmark in 2016, financial or technological issues opportunity to propose a specific making it possible for the other relevant for one or both parties. expert, but the court is not bound party to present reports as a As the expert is appointed by the by such a proposal. If the parties response without regard to the court, the questions to be answered agree on a specific expert, the time at which they were obtained. are approved by the court and the court will, however, often appoint This means that each party can expert is appointed by the court to that expert. present its own expert report support the court in providing the In some civil law jurisdictions, it obtained before legal proceedings basis for its legal decision in is a requirement that the court- and at the same time the opponent deciding the dispute. appointed expert is chosen from a register containing people with has the opportunity to obtain its specific professional andown report from a party-appointed Background and principles technical skills. In Italy, for expert as a response, also after for the general rule example, the court-appointed court proceedings have started. expert (a consulente tecnico d’ufficio In Italy, the procedure is different. The regime of court-appointed or CTU) has to be chosen from Only after the court appoints an experts is based on the civil law the Italian register (Albo dei Periti). expert are the parties given the approach such that the national As the expert is appointed by the opportunity to hire their own expert state by legislation provides the court, the expert report has high (a consulente tecnico di parte or CTP). framework for the parties to have evidentiary value. The courts often CTPs can make comments on the fair presentation of evidence in base the judgment on the expert’s court-appointed expert’s report, civil proceedings, which is partially opinion and most often disregard any which either supports or criticises fulfilled by offering an objective and conflicting statements from witnesses, the conclusions of the court- independent expert. parties or party-appointed experts. appointed expert. This means that civil law consists of comprehensive legal codes also governing the use of court-appointed Party-appointed experts Expert witnesses experts and other experts, including In some civil law jurisdictions, party-appointed experts. The use of party-appointed experts it is also possible for parties to The purpose of court-appointed is usual in civil jurisdictions, despite present statements from party- experts is to secure the neutrality the usual appointment of court- appointed experts as a supplement and impartiality of the expert. appointed experts. or alternative to court-appointed Furthermore, the court’s Party-appointed experts are often used as consultants to support and experts. However, it is required
18 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 that the parties agree on this. It Party-appointed experts When the expert hands in their should be noted that this approach under civil law, inside and report to the court, both parties is more commonly used than court- outside the court regime have the opportunity to ask appointed experts in some civil law supplementary questions, if jurisdictions, such as Sweden. Regardless of the approach when permitted by the court. By this By this approach, the expert drafting terms of reference, party- approach, the parties can challenge witness is an instrument to avoid appointed experts can affect the the expert’s report by asking court-appointed experts. Because court-appointed expert’s report. questions. Because a party- the parties themselves appoint the If the parties determine the appointed expert can frame the expert, such a report will, however, scope of the expert’s report supplementary questions, the have less evidentiary value than themselves, a party-appointed parties have an opportunity to use that obtained from a court- expert will often be the person who the party-appointed expert to appointed expert. assists in the scoping of questions challenge the conclusions of court- to the court-appointed expert. The appointed experts. party-appointed expert acts as If there is a general dissatisfaction Different approaches in consultant and will often continue with the court-appointed expert’s civil law in drafting terms to do so during the entire dispute. report or their competence, there of reference for experts Further, the party-appointed is an opportunity to get a new expert will influence the court- When drafting terms of reference, expert appointed. However, it is appointed expert’s report by asking extremely difficult to get this different approaches are used in specific questions that work in one civil law jurisdictions. approved by the court. party’s favour. As a starting point, In Denmark, the general rule is In other civil law jurisdictions, that the parties jointly determine misunderstandings or misjudgements where the court alone determines should be mellowed through the scope by drafting specific the scope of the expert, a party- questions to be answered by the supplementary questions so that appointed expert can influence the cost related to a new expert. Furthermore, the parties the result. This can be done for can submit whatever questions they appointment is limited. In general, instance by letting the party- the appointment of a new expert is find relevant and the parties cannot, appointed expert (in Norway) as a rule, make objections to the only possible if the court considers make comments on the expert’s it appropriate. counterparty’s questions. In some report or (as in Italy) giving a party- civil law jurisdictions, the court has appointed expert the opportunity a more active role in drafting to either support or criticise the Advantages and questions. In other jurisdictions, the court-appointed expert’s report. disadvantages of court- court will assess the questions and This is different from common appointed experts answers as part of the normal law jurisdictions, where a party- assessment of evidence. appointed expert acts on behalf Advantages In Germany, the scope of the of the party from the beginning statement from the court- until the end of the dispute. In The use of court-appointed experts appointed expert is determined civil law, a party-appointed expert tends to facilitate an incentive for exclusively by the judge, who also is used either to draft references, the parties to agree on settlements. sets out rules for the expert’s comment on the court-appointed As mentioned, the conclusions from communication with the parties. A expert’s report or act as an expert a report from a court-appointed similar approach applies in Norway. witness, thus making the expert expert will often be the basis of the However, the parties have the relevant at different times during court’s judgment. The conclusions opportunity to comment on the the dispute. from the court-appointed expert references and the court has the in favour of one of the parties will opportunity to instruct the parties give the parties directions on the in how to define the questions the How to challenge the likely outcome of the dispute. The expert has to answer. conclusions of a court- other party is often willing to settle In Italy, the approach is different. appointed expert instead of continuing the dispute in A CTU acts as an assistant to the litigation or arbitral proceedings. The parties have different judge, thus making the judge In addition, the procedure for approaches when challenging the responsible for determining the appointment of the expert ensures expert’s conclusion; they can ask scope of the expert’s report. that an objective and independent supplementary questions or, in a expert acts as an expert, which more extreme circumstance, ask for raises the evidentiary value. a new court-appointed expert. Further, this procedure gives both
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parties an equal opportunity to arbitration. For example, another ask the expert questions. PRACTICAL AND key topic is the use of technology, INNOVATIVE USE such as Building Information Modelling (BIM), in the effective Disadvantages OF EXPERTS presentation of complex expert A concern is that inside each Kim Rosenberg evidence. However, in the interests discipline different theoretical Freshfields Bruckhaus Deringer, Dubai of this article being useful to readers or methodical approaches can (as it would not otherwise suffice as be preferred. This can have a a doorstop), the author has limited considerable impact on the expert’s Introduction the content to two topics. final decision, which leads to Expert evidence is a staple numerous disputes not having only feature of construction disputes Concurrent evidence of one ‘right’ answer from the court- – opinions given by individuals party-appointed experts appointed expert. Consequently, a with relevant and specialist of like discipline statement from the court-appointed experience, qualifications or expert will substantially depend skills in the fields to which those This topic is concerned with on the choice of the expert and opinions relate. Those fields can adducing evidence from experts their qualifications. cover, for example, technical of like discipline at the same time. Furthermore, judges normally disciplines on the question of That is predominantly through the do not have in-depth technical whether works are defective or form of joint statements signed knowledge, which characterises complete, the amount and the by the experts and oral testimony disputes in construction law. This cause of delays or disruption to through ‘hot-tubbing’ (vernacular can lead to a concern that courts the works, the quantum of claims, with which we are all familiar but end up appointing generally relevant industry practice or the which may conjure up unappealing qualified professionals, but not application of local laws. imagery). Concurrent expert professionals with specific All stakeholders involved in a evidence is now a common feature technical knowledge, as needed. construction dispute should of construction disputes, particularly Very often, parties themselves may consider the role of expert in international arbitration. This is have better knowledge of the evidence and how that evidence because of the tangible benefit to required qualifications. can be practically meaningful for tribunals in distilling the areas of Finally, court-appointed experts the tribunal.1 After all, if the agreement and disagreement in the can be a less expensive solution tribunal does not find that expert evidence. because only one expert is to be evidence useful in determining In the author’s experience, in appointed. However, the reality is the issues in dispute, the expert any construction dispute there is different as both parties will reports will be relegated to the great capacity for agreement normally have their own expert role of an expensive doorstop. between experts of like discipline when drafting questions to the The stakeholders for these where those experts are expert and making comments on purposes are the parties and their experienced, properly briefed, the final report, thus making the counsel, the tribunal and the prepared and committed to being total expenses higher. experts themselves. So, how can seen to be objective and 2 expert evidence be practically independent. These are important caveats because Christian Johansen is at Bruun & Hjejle, meaningful for the tribunal? Does unfortunately it is not always the Copenhagen. He can be contacted at there need to be innovation in [email protected]. the way in which expert evidence case that experts meet these is proffered? criteria, even when they hold This article considers two topics themselves out as doing so. One in addressing those questions: (1) need look no further than the concurrent evidence of party- following excerpts from decisions appointed experts of like of the English courts on discipline; and (2) using quantum construction cases (which, unlike expert evidence to quantify the most arbitral awards, are public) tribunal’s myriad decisions on the to see that experts do not always issues in dispute. meet the standards reasonably 3 These are not the only topics when expected of them: it comes to considering practical • ‘So unbiased and irrational do and innovative means of using I find this “expert” evidence expert evidence in construction that I conclude he failed in his
20 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 duty to the court… At the end occurred on the Project and gives However, this is more difficult to of his report, Mr [X] said he rise to an hypothetical answer implement in practice when an understood that duty. I do not when the timing of design release expert has already issued their think he did. He came to argue is compared against the original individual expert report and this a case. Any point which might construction programme.’8 has been disseminated to relevant support that case, however flimsy, An expert fails to meet the standard stakeholders in an international he took. Nowhere did he stand expected of them at their peril, even arbitration. That expert will, back and take an objective view in private international arbitral rightly, have a sense of professional as an architect…’4 proceedings that are shrouded in pride and will want to protect the • ‘I was disappointed with Mr [X] confidentiality. This is because party- integrity of the analyses that led to who, although an experienced appointed expert opportunities arise their written opinions. They will expert, I felt was trying too through word of mouth referrals. also know that any change in their hard to reduce the delay and Those opportunities dry up as word opinions will be closely scrutinised other quantum heads to an spreads through the small and leaky by all stakeholders, including their insignificant level. Whether he construction arbitration community client who is paying their invoices felt, subconsciously, pressurised by that an expert has failed to meet and, depending on the precise [a representative of his appointing the standard reasonably expected circumstances, that change could party] or not I cannot say. But of them.9 be used as an avenue to seek to his arguments were reduced For present purposes, this article undermine their credibility on to scraping the barrel in some assumes the situation where experts cross-examination. That resistance respects… He indorsed a totally of like discipline are experienced, can be minimised by early artificial calculation…’5 properly briefed, prepared and engagement between experts. • ‘Mr [X] allowed himself to be used, committed to being seen to be There is merit in going one step whether wittingly or otherwise, by objective and independent. In that further and mandating in [his appointing party and their situation, in most (if not all) Procedural Order No 1 that experts claims consultants] (those with construction cases, there is merit in of like discipline not only meet at the most to gain in this litigation) exploring concurrent expert an early stage, but also issue a joint to act as their mouthpiece. It was evidence. Some of the key issues statement on, at least, relevant almost as if they were trying to that need to be considered are the methodology issues before any see how much of their claim they timing for concurrent expert individual expert reports are filed. could get past Mr [X], and then evidence, setting the agenda for This reduces the risk that the Mr [Y], and ultimately the Court. that evidence and the particular experts adopt different methods of It made a mockery of the oath challenges of ‘hot-tubbing’. analysis that then make it difficult which Mr [X] had taken at the In relation to the first of these, for the tribunal to compare their outset of his evidence.’6 the timing for commencement of evidence and by the time those • ‘Mr [X] who was charged with the concurrent expert process, analyses are presented it is too late the duty of independently early is better. Ideally, expert and disproportionate from a costs researching and analysing these engagement should commence as perspective to revert to alternative events singularly failed to take soon as there has been a methods. The Society of account of this documentation crystallisation of the issues in Construction Law Delay and and the photographic evidence dispute between the parties so the Disruption Protocol recognises the in his written report for the court experts can then appreciate the inherent value in early engagement and presented a view of the course topics that they need to address. on methodology between party- of the critical path which was Specifically, it is more productive appointed experts:11 clearly wrong.’7 for experts to start meeting to ‘In order to avoid or at least • ‘I reject Mr [X]’s evidence that discuss their views on the relevant minimise disputes over the late design information issues (without prejudice) before methodology, it is recommended either caused or contributed to the production of their respective that the parties try to agree an the critical delay in the Project. individual expert reports. This is appropriate method of delay His analysis was self-confessedly because there is often an analysis before each embarks incomplete. He did not have the unconscious (and possibly upon significant work on an after time to approach the research conscious) resistance to changing the event delay analysis. Failure to of this aspect of the case in the position once their opinions have consult the other party on delay complete and systematic way, been committed to writing. We can analysis methodology is a matter furthermore, the impacted as appreciate the sage insight that ‘a that the Protocol considers might planned delay analysis takes no wise man changes his mind be taken into account by the account of the actual events which sometimes, but a fool never’.10 adjudicator, judge or arbitrator
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in awarding and allocating material impact on their analyses The alternative is to leave it to recoverable costs of the dispute.’ and opinions. The introduction of the experts to agree on their Having said that, it is important new evidence provides a sensible agenda. As the individuals most to recognise the reality of the basis for an expert changing their familiar with the expert issues, situation that in a large and complex opinions but, in the author’s they should know how to frame construction dispute, the parties opinion, that does not completely the questions to be answered in may have had experts on board erode the inherent resistance to the joint statements to distil the for months before arbitration is change where the expert’s expert evidence. Unfortunately, commenced, working up their opinions are already in writing. that is not always the case. If the analyses and assessing the claims. So, when faced with memorial experts cannot agree on their Accordingly, the risk remains that style pleadings, is it an option to agenda, this responsibility will experts of like discipline are already start the concurrent expert necessarily fall back onto legal a long way into their respective evidence process in advance of the counsel or, in challenging analyses using their chosen methods Statement of Claim? There are situations where legal counsel also before the commencement of any practical challenges in doing so. does not agree, the tribunal. engagement between the experts in This is because, at that point in The final consideration for this the arbitral proceedings. time, the only documents available article in relation to concurrent There is also merit in having a to identify the issues in dispute are expert evidence is ‘hot-tubbing’. final joint statement by experts of high-level summaries contained in This is a process by which experts of like discipline after the individual the Request for Arbitration and like discipline are both sworn in and expert reports have been filed so Answer. These documents tend to give oral evidence together. There that the experts can effectively be too brief to identify the issues are numerous variants on the actual distil their collective evidence in dispute to be addressed by procedure (such as whether the into a series of issues that are expert evidence. tribunal leads the questioning or this agreed and disagreed. That can This conundrum is often one is left to legal counsel). Hot-tubbing act as a neat road map for the of the reasons for arguing against is increasingly requested by tribunals tribunal in navigating through memorial style pleadings in a dealing with complex construction the expert evidence.12 complex construction dispute, disputes. It allows them to understand Of course, where pleadings are even though it may be the more the views of experts of like discipline served in memorial style, this common approach in in real time, rather than hearing one creates difficulty in creating a international commercial expert on all issues and then waiting procedure where experts of like arbitration. As an alternative, for hours or potentially days during discipline start meeting before sometimes a hybrid pleading the merits hearing to understand the they commit their opinions system is considered where the views of the counterpart expert on a (particularly on methodology) to fact witness statements particular issue, by which time they writing. This is because the accompany the pleadings but the have been distracted by lots of other individual expert reports relied on expert reports are filed later. issues. Hot-tubbing also can be a by the claimant will be filed with This approach can be a sound powerful tool for tribunals in the Statement of Claim – and compromise depending on the educating themselves on pertinent those experts will have committed precise circumstances. matters that are not clear from the their opinions to writing at that The next issue for consideration evidence on the record or the filing date. Those opinions will be is the agenda for the concurrent submissions. In addition, this allows based on only part of the factual expert evidence process. What are for the distillation of the expert and documentary evidence, the experts to discuss? What issues evidence, but this time – possibly for namely the evidence relied on by will they opine on in their joint the first and only time – it is in the claimant but not that of the statements? In appropriate cases, response to the key questions as the defendant. Moreover, the experts there is merit in legal counsel tribunal sees them for the purposes on both sides will commit their agreeing the joint instructions to of deciding the dispute. opinions to writing in their experts of like discipline. After all, There is a view that hot-tubbing individual expert reports before they will have a good handle on the can assist both the performance of any document production. This issues in dispute in the arbitration the experts in giving evidence situation means that there is high and are often best placed to (which allows the tribunal to have probability that after each expert surgically formulate key questions greater comfort in relying on that has produced at least one of their for the experts, with the objective evidence) and the quality of the individual reports, relevant of ending up with a distillation of evidence itself. This is because hot- evidence will be made available to the expert evidence relevant to tubbing can discourage posturing – them for the first time, which has a those issues in dispute. it is more awkward for an expert to
22 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 make snide remarks when their These can include, for example: It becomes more complicated counterpart expert is sitting right (1) the proper interpretation where there are numerous claims beside them – and encourages each of provisions of the contract with a greater number of issues in expert to frequently re-evaluate the relevant to each of entitlement dispute, and hence decision evidence and their analyses in light and valuation; (2) the location of points, for the tribunal. This turns of their counterpart’s opinions.13 In the critical path and the cause and the tool into a complex ‘choose one case, hot-tubbing was said to amount of critical delay; (3) the your own adventure’ dynamic have ‘helped foster true and resources affected by relevant delay model. This approach can be objective consensus’.14 and disruption events, and the feasible only where the parties and These benefits, though, are only nature and extent of those impacts; the quantum experts turn their derived where hot-tubbing is and (4) the appropriate methods minds to such a model early in the deployed by a tribunal that is for valuing loss or additional costs. proceedings. This is for two sufficiently advanced in their The tribunal will want quantum reasons. First, such a model understanding of the issues and expert evidence in a form that inevitably incorporates a the evidence to be able to allows it to quantify the outcome significant amount of opinion formulate precise questions on following a determination on each evidence in summary form. Each concrete matters for the experts to of those decision points. How is quantum expert needs to be address in oral testimony. For this achieved? satisfied that it properly reflects example, ‘if we find that the There are a number of innovative their opinion evidence. Moreover, critical path runs through ABC procedural options that might be the aggregation of that evidence activity, what is your position, Mr appropriate in a particular case. into the model itself is quantum X, on the number of days critical They require early consideration evidence and the parties may delay? What is your position Mr Y?’ by the stakeholders to be effective. reasonably request the opportunity There is also the risk that, unless to test it with the quantum experts the tribunal is controlling the as appropriate (including through process through tight questioning Experts to develop dynamic cross-examination). Second, this and is fastidious in giving each financial model model must reflect the decision expert the opportunity to respond It is increasingly common for points of the tribunal. If it is too on each point, preferably in quantum experts to seek to blunt and skips various decision alternating order, this process can collaborate in preparing a tool points, it will become misleading be skewed in favour of the expert that allows the tribunal itself to and hence otiose. Therefore, it is who is most proficient in advocacy, quantify aspects of the claims. important for legal counsel and which runs counter to the ideal of This could be a tool to calculate the tribunal to be satisfied that all an independent expert. liquidated damages, depending of the issues in dispute are Legal counsel of course is going on the tribunal’s finding on the reflected as decision points in the to present their client’s case in the days of excusable critical delay, or model. In this regard, as any best light, expert evidence interest, depending on the tribunal’s tribunal will know, despite the best included. In considering whether conclusions regarding sums owing. will in the world, it is not common to propose or accede to a request Of course, these tools may still for parties to agree on a succinct for hot-tubbing, they will assess contain different permutations list of issues in dispute. The model these risks, focusing on the depending on whether there are itself therefore needs to be capable personality and experience of the issues in dispute regarding the of dealing with differences of view experts and the preparedness of relevant claims. For example, in in relation to the decision points the tribunal. relation to liquidated damages, for the tribunal. there may be disagreement between However, if there is open and the parties as to whether the cap on constructive dialogue at an early Using quantum expert stage between legal counsel and evidence to quantify the liquidated damages is calculated by reference to the original contract the tribunal and between the tribunal’s myriad decisions quantum experts, this approach on issues in dispute price or the amended contract price at completion. In relation to may be possible. It is certainly The second topic for this article interest, the parties may disagree on attractive to the tribunal as it allows focuses on quantum expert the trigger date for the calculation of them to leave the merits hearing, evidence. Taking a step back, in interest and the rate to be applied. having closed the evidence phase complex construction disputes, Those limited permutations can of the arbitration, with the tools at there are numerous decision be readily accommodated in a their disposal to effectively quantify points for the tribunal in reaching simple tool, for example, in an the claims and counterclaims based a conclusion on sums owing. Excel spreadsheet. on the evidence and include a
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figure in their award regarding Of course, the longer the timeframe The downside with this approach, sums owing. between the end of the merits hearing and the reason why it tends to be A downside to this approach is and the issue of the partial award, the disfavoured by tribunals, is the risk the cost. While some of the effort more time and effort it will take the that the losing party cries foul from a associated with preparing such a quantum experts to turn their minds due process perspective, arguing model will be required to the quantum evidence for the that the tribunal has demonstrated irrespective (ie, distilling the purposes of seeking to agree on the bias before it has properly assessed quantum expert evidence and quantification. Therefore, from a the evidence. Whether such a identifying the issues in dispute), practical perspective, the tribunal complaint is reasonable depends on there will still be significant work needs to be in a position to issue a the circumstances. However, we are involved in reaching a point timely partial award.16 all familiar with the industry focus in where the model, with all of its The downside is that there may recent years on the worrying trend permutations, is agreed. That be greater risk of the proceedings of due process abuse.19 Nonetheless, means significant costs. being derailed by a party who is given the tribunal’s general duty dissatisfied with the partial award from a due process perspective,20 the and takes immediate steps to set risk of such complaints should be Bifurcation of quantification aside that award. After all, under factored in by the tribunal and the Bifurcation of quantum evidence the United Nations Commission parties in considering whether this is often considered by one or more on International Trade Law approach is appropriate. parties in international arbitration (UNCITRAL) Model Law, an Another potential downside is that but is rarely implemented at the application for setting aside must this approach can lead to one party outset of the proceedings for be made within three months of anticipating, from the hypothetical 17 construction arbitration. This is receipt of the award. Certain scenarios, the tribunal’s likely because questions of quantum are jurisdictions have reduced this determinations and then, similar to 18 often intricately connected with the time period even further. the quantification bifurcation other elements of the claims and Alternatively, a dissatisfied party approach, deploying a strategy to there is little cost saving overall in may deploy a strategy that seeks to avoid that outcome, which can of having separate hearings. effectively open up or undermine itself derail the proceedings. However, late bifurcation on the determinations within the quantification is a way of permitting partial award through the quantification phase of the Meetings between quantum the tribunal to put itself in a experts and tribunal position where it can put a figure proceedings. That can lead to an on its determinations based on the elongation of the arbitration A variation on the aforementioned quantum evidence on the record. timetable. Tribunals therefore can, two approaches is where the This would be achieved by the understandably, be reticent about tribunal meets in confidence with tribunal issuing a partial award this procedural approach. the quantum experts, without on all issues in dispute other than the presence of legal counsel or the quantification of its Valuation of tribunal’s the parties, to get their input on 15 determinations. It would then hypothetically framed scenarios quantification before the tribunal seek input from the quantum has made final determinations. The experts based on the evidence This approach is similar to the benefit of this approach is that the already on the record or submissions bifurcation of quantification. tribunal members may perceive they from legal counsel on However, instead of a partial award, have greater freedom in seeking quantification. A sensible approach the tribunal would issue a series to properly understand the likely might be to instruct the quantum of hypothetical scenarios and seek quantification of their preliminary experts to seek to agree on the input on quantification for those determinations and make sure that quantification of the partial award scenarios from the quantum experts they have not misunderstood the in the form of a joint statement. or through legal submissions based quantum evidence, while the risk of The benefit of quantification on the evidence already on the a dissatisfied party complaining of bifurcation is that there are likely record. This approach has the bias or derailment before the final material cost savings by having the same benefits as the bifurcation of award are reduced. quantum experts focus, in addition to quantification, although the number However, there are considerable their primary positions as set out in of permutations to be considered due process considerations with this their individual expert reports, on given those scenarios likely will be approach, particularly to ensure only one outcome, namely the greater than the one outcome based that each party has a fair right to be tribunal’s determinations, and not on on the tribunal’s determinations in a heard despite having been shut out all reasonably possible permutations. partial award. of discussions between the tribunal
24 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 and party-appointed experts about Tribunal-appointed quantum reports that fail to shift the dial in the evidence. Therefore, tribunals expert resolving the dispute. Concurrent would be wise not to pursue this evidence for party-appointed experts option in the absence of the express This approach involves the tribunal of like discipline can go a long way agreement of the parties (which appointing their own quantum towards distilling the evidence for ought to be sought on the basis that expert to assess the evidence the tribunal’s benefit and potentially this process will not lead to the given by the party-appointed fosters a culture of consensus between introduction of new evidence) and quantum experts. (The author experts of like discipline. When it express commitment by the experts notes the possibility that there is comes to quantum expert evidence, to maintain confidentiality over the only one quantum expert who is innovation might be needed to discussions with the tribunal and appointed by the tribunal, but in ensure the tribunal is equipped not share details with their client or complex construction disputes with the tools to quantify their instructing legal counsel. to be resolved by international determinations. Otherwise, the From legal counsel’s perspective, arbitration, it is far more likely tribunal may be required to decipher this approach causes discomfort – that any tribunal-appointed expert and extrapolate from reams of pages and with good reason. Quite apart would be in addition to party- of expert reports, none of which are from the inherent unease faced by appointed experts). directly applicable to their precise legal counsel in relinquishing The tribunal needs to be determinations. That could be a complete control over the quantum particularly mindful of ensuring risky proposition. Thankfully, in the expert evidence to the tribunal, due process where an expert is to be author’s experience, there is a growing legal counsel will be conscious of appointed by the tribunal, which trend in international construction requires careful management and the risks involved that can be 21 arbitration for stakeholders to be prejudicial to their client’s case. takes time. As a result, for this thoughtful and innovative about First, where the evidence phase of option in particular, it is feasible the presentation and manner of the proceedings has closed, there is only if it is considered at an early adducing expert evidence to promote the risk that new evidence will be stage. However, at that time, the proportionate dispute resolution. presented to the tribunal in these tribunal may not appreciate whether May that continue. meetings, as distinct from the it will need assistance in wading distillation of existing evidence. If through the quantum evidence. legal counsel is not present in these Given the cost associated with a meetings, they cannot monitor the tribunal-appointed expert, the Notes situation and make submissions tribunal will be loath to proceed 1 This paper focuses on expert evidence in down this path if it perceives that it is international arbitration, rather than in where they consider the line has domestic litigation or arbitration or some been crossed. Second, similarly to unlikely to be a proportionate way forward. That will be particularly so other form of alternative dispute resolution. the position with hot-tubbing, the 2 IBA Rules on the Taking of Evidence in process can favour the expert that is if the tribunal members have been International Arbitration, Article 5(2) (c) the better advocate. Legal counsel selected based on their expertise in requires experts to include a statement in construction disputes and ability to their reports of ‘his or her independence will be blind as to whether their from the parties, their legal advisors and client’s expert was given an equal dissect complex expert evidence. Therefore, at the early stage of a the Arbitral Tribunal’, among other things. opportunity to present their views. 3 The names of the experts involved have Third, legal counsel does not have a construction arbitration, tribunals been removed to avoid personalising re-examination opportunity, for tend to lean in favour of not these judicial comments. appointing their own expert. As a 4 Pearce v Ove Arup Partnership & Ors 2001 example, to prompt their client’s WL 1251820, at paras 59–60. expert to present a full picture of result, it is rare for experts to be appointed by a tribunal. Nonetheless, 5 Walter Lilly & Co Ltd v Mackay (No. 2) the evidence where it appears their (2012) 143 ConLR 79, at 101. opinion evidence has been taken in an appropriate case, this might be 6 Van Oord UK Limited & Anor v Allseas UK out of context. Fourth, the a sensible way forward. Limited [2015] EWHC 3074 (TCC), at 93. 7 Great Eastern Hotel Company v John Laing commercial reality is that legal Construction Ltd [2005] EWHC 181 (TCC), counsel tends to be responsible for Conclusion at para 117. managing the costs of an arbitration 8 Ibid, para 184. and reporting accordingly to their Stakeholders to construction 9 K Rosenberg, The Use of Expert Evidence client. If they have no visibility over arbitration should ensure that expert in Resolving Disputes in Common Law evidence is practically meaningful Jurisdictions, Society of Construction Law what the quantum expert is doing, (D186), December 2015, para 52. it is difficult for them to explain to for the tribunal in deciding the 10 Attributed to Desmond Ford. the client why the expert’s fees issues in dispute. There is no point 11 Society of Construction Law, Delay and are reasonable. carrying out time-consuming and Disruption Protocol (2nd edn), February expensive analyses and producing 2017, Guidance Part B, para 11.8, p 37. 12 In between the first and the final joint
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statement, there may be a number of 19 L Reed, Ab(use) of due process: sword vs joint statements addressing specific issues. shield, Arbitration International, Vol This helps with ensuring regular progress 33, Issue 3, 1 September 2017, pp 361- RULES ON EXPERTS – is made by the experts in addressing the 377; R Gerbay, Due Process Paranoia, A CRITICAL ASSESSMENT issues in dispute. Kluwer Arbitration Blog, 6 June 2016, 13 Re N [2015] EWCOP 76, at 18, referred available at http://arbitrationblog. Russell Thirgood to in Civil Justice Council, Concurrent kluwerarbitration.com/2016/06/06/ McCullough Robertson, Brisbane Expert Evidence and ‘Hot-Tubbing’ in English due-process-paranoia/, last accessed 24 Litigation Since the ‘Jackson Reforms’: A Legal January 2019. and Empirical Study 24 (2016), available 20 For example, Section 33 of the Arbitration Introduction at: www.judiciary.gov.uk/wp-content/ Act 1996 (England and Wales) and Article uploads/2011/03/cjc-civil-litigation- 22 of the ICC Rules of Arbitration (2017). International construction projects review-hot-tubbing-report-20160801.pdf; 21 The Chartered Institute of Arbitrators G Edmond, A Plenderleith Ferguson and has produced an international arbitration can result in disputation that T Ward, Assessing Concurrent Expert Evidence, practice guideline that is helpful in necessitates the engagement of p 9. Last accessed 24 January 2019. this regard. See Party-appointed and expert witnesses to crystallise and 14 Ibid. Tribunal appointed Experts, International give opinion on technical issues 15 This assumes that partial awards are Arbitration Practice Guideline, Charted for the benefit of the tribunal permitted under the lex arbitri – and it Institute of Arbitrators, available at: is worth checking. For example, in the www.ciarb.org/docs/default-source/ and have them resolved in an UAE, until the new arbitration law was ciarbdocuments/guidance-and- independent and impartial way. implemented in 2018 (Federal Law No 6 ethics/practice-guidelines-protocols- That process can often take place of 2018), there was ambiguity as to whether and-rules/international-arbitration- in the international commercial the tribunal had jurisdiction to render guidelines-2015/party-appointed-and- arbitration area. Fortunately, the multiple awards under the same arbitration tribunal-appointed-expert-witnesses-in- agreement. This ambiguity arose out of international-arbitration.pdf?sfvrsn=2, construction industry is well served Court of Cassation decisions to the effect last accessed 24 January 2019. by soft law instruments that provide that an arbitration agreement is exhausted common ground rules dealing with once the arbitral tribunal issues an award expert evidence. on the merits of the dispute – so one award International commercial per arbitration agreement (Dubai Court of Cassation, Petition No 502/2002 (Rights), 22 arbitration proceedings bring March 2003, Abu Dhabi Court of Cassation, together individuals of different Petition No 174 of 2014 (Commercial), 22 backgrounds from a range of April 2014). The new arbitration law makes intellectual disciplines and it clear that the tribunal can issue awards on experiences. These proceedings parts of the claims before then issuing the final award (Article 39(1) of the Federal Law should accommodate different No 6 of 2018). cultures, norms and expectations. 16 The arbitration rules of major institutions This article will address the require the tribunal to implement a appointment of experts, the procedure that expeditiously resolves briefing of experts and the ethical the dispute (eg, Article 14.4(ii) of the LCIA Arbitration Rules (2014)) or to obligations imposed on experts issue the final award within a set period and party representatives from the of time (eg, Article 31 of the ICC Rules perspective of the available rules of Arbitration (2017) and Article 36.2 on experts. A critical assessment of of the DIAC Arbitration Rules (2007)). those rules will demonstrate that a Therefore, there is an expectation of timely partial and final awards amongst global and common playing field arbitration stakeholders. has emerged for the benefit of the 17 Article 34(3) of the UNCITRAL Model Kim Rosenberg is a major projects lawyer broader industry. Law on International Commercial at Freshfields Bruckhaus Deringer, Dubai Arbitration (1985), with amendments and can be contacted at kim.rosenberg@ adopted in 2006. freshfields.com. Appointment of experts 18 For example, in England and Wales, an application challenging an award must be In the arbitration of construction made within 28 days (assuming no arbitral disputes, arbitrators should discuss review or appeal process) pursuant to with the parties the precise manner Section 70(3) of the Arbitration Act 1996 (England and Wales), in the UAE, the in which expert evidence should 1 time period is 30 days pursuant to Article be adduced. Expert evidence 54(2) of the Federal Law No. 6 of 2018, may be adduced by the parties or and in Switzerland, the time period is the arbitrator may appoint expert also 30 days pursuant to Article 190 of the witnesses. Specifically, parties Federal Statute on Private International Law in conjunction with Articles 77 and may wish to appoint their own 100(1) of the Federal Statute on the Swiss experts, parties may jointly agree Federal Supreme Court. to appoint an expert, arbitrators
26 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 may wish to appoint a single incompatible approaches to to appoint an expert. This may be expert and arbitrators may wish answering the question arising in the done instead of or in addition to the to appoint a tribunal-appointed arbitration proceedings or disagree parties appointing experts. Many expert in addition to a party- on the question itself. For example, arbitration rules grant arbitrators appointed expert. The practice one party-appointed expert may use express powers to appoint their of parties appointing their own accounting pricing while the other own expert on their own motion or experts in international arbitration uses economic pricing to determine upon a party’s request.9 Article 12 of proceedings is more common quantum. Of course, it can help if the London Court of International than the appointment of a single the parties can agree the scope of Arbitration (LCIA) Arbitration joint expert by the parties.2 Most instructions of the experts or if the Rules and Article 6 of the 2010 IBA parties frequently appoint their own arbitral tribunal gives directions to Rules on the Taking of Evidence in experts, as a party’s right to appoint alleviate this problem. International Arbitration expressly an expert is a key part of its right to A jointly appointed expert may provide for the appointment of submit evidence and to be heard. be appointed by the parties experts by the arbitral tribunal. The together to limit the expert arbitral tribunal, after consulting evidence on a question arising with the parties, may appoint one Party-appointed experts in international arbitration or more tribunal-appointed experts 5 Many arbitration rules and proceedings to that of one witness. to report to the tribunal on issues 10 instruments, including Article 5 of The appointment of a single joint designated by the tribunal. In the the Chartered Institute of Arbitrators expert by the parties together is absence of express provision and (CIArb) Practice Guidelines on Party- less common in international provided that there is no prohibition appointed and Tribunal-appointed arbitration proceedings, as the under the arbitration agreement Experts 2016, provide parties with the parties have a more limited basis to and rules, arbitrators may have an right to adduce independent expert challenge the expert’s opinion if it implied power to appoint their 6 evidence in writing without the need is unfavourable to them. However, own expert. This implied power is to consult with the other party or the it is normal for the parties to be sourced in their broad discretion to arbitrator. In the absence of express given an opportunity to ask the adopt procedures for the conduct rules, it is widely accepted that a party’s single joint expert questions at the of the arbitration proceedings right to be given a fair opportunity hearing or some other stage of the suitable to the circumstances of the 11 to present its case includes a right arbitral proceedings. An advantage matter. By appointing an expert, to call independent experts when of appointing a single joint expert the tribunal can ensure that it is such evidence is necessary for the is that it may be a more cost- receiving an impartial view of the resolution of an issue in dispute.3 It effective method of adducing evidence. However, the tribunal is is the responsibility of the appointing expert evidence by avoiding required to have analysed the matter party to agree with the expert the conflicting expert evidence and and the issues at a sufficient level of manner in which the expert will limiting the volume of expert detail to determine the profile of address the question in dispute, the evidence that would otherwise be the required expert. remuneration of the expert and the presented. This makes it an A tribunal-appointed expert arrangements for the presentation attractive option where the cost may be instructed in addition to of expert evidence.4 Further, it is the and time of resolving competing party-appointed experts. This is responsibility of the appointing party expert opinions would be appropriate where the arbitrator to instruct its expert on any directions significant compared to the requires assistance to decide 7 given by the arbitrators. This may quantum in dispute. Furthermore, differences of opinion between include directions for the experts the use of a jointly appointed the party-appointed experts. to meet in order to seek to narrow expert ensures an objective However, instructing a tribunal- any differences of opinion and to opinion is delivered. The jointly appointed expert and a party- prepare a joint report identifying the appointed expert is under no appointed expert will increase the issues on which they have agreed and pressure to support one party over cost of the arbitration and possibly 12 the issues on which they disagree. If another. The parties will only extend the proceedings. a single expert is jointly appointed agree on the expert if both parties Where experts are appointed by by the parties, the parties are both regard the expert as qualified, the tribunal, the arbitrator may 8 responsible for their selection, impartial and professional. invite the parties to participate in appointment and remuneration. the expert selection process. The arbitrator may prepare a shortlist of Where each party appoints its own Tribunal-appointed experts expert who works in isolation to potential candidates whom they produce a report, there is the risk Another manner of adducing expert consider to have the requisite that the parties’ experts adopt evidence is for the tribunal itself qualifications and expertise to
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determine the issue and invite the and should be included in the (Australia) Pty Ltd v Sprowles (2001) parties to comment on the suitability arbitrator’s expenses.19 62 NSWLR 705, it is important for an of the candidates.13 The arbitrator ‘expert witness to make it clear when may also request the parties to a particular question falls outside his produce a list of criteria, including Briefing experts or her expertise’.22 relevant qualifications and The following issues may also be experience they consider the considered when briefing experts. tribunal-appointed expert should Transparent communication possess. An alternative approach is protocol for tribunal-appointed for arbitrators to request the parties Experts as ‘hired guns’ experts to submit an agreed shortlist of Sometimes, expert witnesses can It is considered best practice to potential candidates.14 Instead of act as ‘hired guns’ whose expertise conduct all communication in a the parties submitting an agreed is sold to the highest bidder. They transparent manner by ensuring all shortlist, the arbitral tribunal may are considered biased as their conversations by the arbitral tribunal also invite the parties to provide the knowledge and opinions are with tribunal-appointed experts tribunal with separate short lists of tailored to satisfy the needs of their are in the presence of all parties. candidates from which the tribunal instructing party in the arbitration All written communication with selects an ‘expert team’ comprising proceeding.20 These ‘hired guns’ the experts should be copied to all one expert from each list. This are rarely effective. Experienced parties to ensure that all parties know approach is referred to as the Sachs counsel and arbitral tribunals will what is going on and what materials Protocol. Following the 23 be able to find ways to discount or have been provided to the expert. appointment, the tribunal meets disregard expert evidence from a Arbitrators must not have private with the experts and the parties to ‘hired gun’. Accordingly, parties communication and conversations establish a protocol for the expert and arbitrators should strive to brief with the experts, as this may give team. The expert team prepares a experts in an objective manner. rise to grounds for a challenge by joint report for review by the reason of a lack of due process, tribunal and the parties before independence and impartiality.24 15 preparing a joint report. Briefing experts who do not All directions should go through the Regardless of the manner in which have relevant expertise parties’ counsel and be copied to a tribunal appoints an expert, both parties with no direct contact Parties and arbitrators should only importantly, the arbitrator(s) with the experts. Importantly, appoint experts who have actual should obtain the parties’ arbitrators should establish a expertise and knowledge relevant to agreement on the expert selected protocol setting out a procedure the issue in dispute. Experts will get by the tribunal to reduce the risk of regarding communications with into great difficulties if they attempt later challenges to the expert, the the experts, the manner in which to give evidence outside their scope expert’s report and any award the experts should contact the 16 of expertise. An expert ought not relying on it. Once an expert is parties or the arbitrator and the give evidence on a matter calling appointed, the tribunal may ask the manner in which the parties should for special skill or knowledge unless parties to comment, within a submit documents and material to they are an expert in such matters.21 specified time period, on the the experts.25 expert’s assignment, including In Clark v Ryan (1960) 103 CLR 486, submitting questions that the the plaintiff, the driver of a panel parties consider necessary to be van that collided with a semi-trailer, Cultural differences and addressed by the expert.17 called a consulting ‘engineer’ as a ethical obligations Prior to the appointment of an witness. The witness had experience Cultural differences in conflict expert, the tribunal should in investigating road accidents resolution processes are the require expert candidates to and assessing losses; however, they products of values of every society, provide statements of their held no professional engineering based on history, language, independence, availability and a qualifications. The witness purported social norms and perceptions of copy of their resume. This to give evidence as to how the semi- justice.26 Understanding these information should be disclosed trailer and the vehicle collided. It values has important consequences to the parties and they should be was held that most of the witness’s for international arbitration. given the opportunity to comment evidence was inadmissible because International arbitration proceedings within a specified time.18 The fees the witness was not qualified to bring together individuals of different and expenses of a tribunal- speak on the matters about which backgrounds from a range of appointed expert form part of the he had given evidence. Accordingly, intellectual disciplines to achieve fair procedural costs of the arbitration as Heydon JA emphasised in Makita and just results.27 The following are
28 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 some ‘cultural issues’ that should be give rise to conflicts in international admonish the party; draw explored to improve international arbitration. For example, a party from appropriate inferences in assessing arbitration proceedings. a civil law background may expect the evidence relied upon or the an inquisitorial and conciliatory legal arguments advanced by the approach to be taken by the tribunal. representative; consider the parties’ Verbal and non-verbal Further, the arbitrator, due to their misconduct in determining the miscommunication cultural background, may expect the costs of the arbitration; and take any Verbal and non-verbal proceedings to be conducted in a other measures in order to preserve miscommunication leads to a lack manner that the parties might not be the fairness and integrity of the of understanding and is one of the prepared for, which may consequently proceedings. Further, professionals causes of conflicts. All cultures have favour one party over another. are governed by their own rules of different verbal and non-verbal To address situations in which evidence and, ultimately, complaints communication systems that reflect differing norms and expectations may be made to their relevant their customs.28 For example, a verbal may threaten the integrity and professional body. and explicit style of communication fairness of international arbitration proceedings, parties and tribunals is found in Western societies such Conclusion as the United States and Australia, may benefit from guidance such as while non-verbal and implicit the IBA Guidelines on Party Soft law instruments, such as the communication style is more typical Representation in International CIArb Practice Guidelines on of independent, collectivist societies Arbitration (the ‘Guidelines’). Party-appointed and Tribunal- such as Japan and China.29 Further, Specifically, Guidelines 18–25 are appointed Experts and the IBA Western societies, typically, get concerned with interactions Rules on the Taking of Evidence in straight to the point, while societies between parties’ representatives International Arbitration, provide like China place a higher value on and expert witnesses. As part of the the parties and arbitral tribunals ambiguity and tact and make greater preparation of expert evidence, a with tremendous assistance in use of implied meaning and non- party representative may, consistent dealing with expert evidence. The verbal communications.30 with the principle that the evidence parties and their representatives The same can be said of non- given should reflect the expert’s come to international commercial verbal communication, such as own analysis or opinion, meet or arbitration from many diverse gestures, facial expressions and interact with the expert in order to cultures that may have different body language, which communicate discuss and prepare their practices for dealing with expert different signals. Innocuous non- prospective testimony. A party evidence. This soft law provides verbal communications in one representative may also assist an a great ‘levelling of the playing culture can be considered highly expert in preparing their expert field’ to ensure that no party insulting to another.31 report. However, a party is disadvantaged. It forms part representative should ensure that of the great ‘melting pot’ that an expert report reflects the is international commercial Cultural biases and stereotypes expert’s own opinion. It is arbitration. Given the prevalence important that party representatives People from different cultures of disputation in international instruct their experts that their hold different views of each other construction projects and the fact overriding duty is owed to the based on ethnicity, nationality that parties come from many diverse tribunal and not to the instructing or race. Indeed, such cultural backgrounds, this ‘soft law’ is critical party.33 An expert should act as an differences may give rise to cultural in providing a rules-based platform independent agent who presents bias. To facilitate a respectful for the broader construction impartial expert evidence to the and objective process, arbitrators industry to conduct its affairs with tribunal. Experts should not be should be aware of cultural biases greater levels of certainty. seen as representatives of the and differences, and understand instructing party. how the proceedings might be Notes Further, Guidelines 26–27 perceived by some parties to be 1 CIArb Practice Guideline on Party- identify remedies to address biased against them.32 appointed and Tribunal-appointed misconduct by a party representative. Experts 2016. The purpose of these Guidelines is 2 LCIA Experts in International Arbitration. to preserve the fairness and integrity 3 See n 1 above. Common law and civil law 4 Ibid. legal systems of the arbitration proceeding. If the 5 Aniano Luzung, Minimising Expert Witness tribunal finds that a party Bias (2005) New South Wales Law Reform The difference between common representative has committed Commission Report, 66. law and civil law legal systems may misconduct, the tribunal may 6 See n 1 above. 7 Ibid.
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8 See n 5 above. 25 Ibid. 9 See n 1 above. 26 William K Slate II, ‘Paying Attention to 10 IBA Rules on the Taking of Evidence in Culture in International Commercial International Arbitration 2010. Arbitration’ (August/October 2004) 11 See n 1 above. Dispute Resolution Journal 2. 12 Ibid. 27 Ibid. 13 Ibid. 28 Ibid 99. 14 Ibid. 29 Ibid. 15 ‘Protocol on Expert Teaming: A New 30 Ibid. Approach to Expert Evidence’ (Paper 31 Ibid. presented at 20th Congress of the 32 Ibid. International Council for Commercial 33 See n 1 above. Arbitration (ICCA), Rio de Janeiro, 2010), 11. 16 See n 1 above. 17 Ibid. 18 Ibid. 19 Ibid 20 Roy Beran, ‘The role of the expert witness Russell Thirgood is a partner at in the adversarial legal system’ (2009) 17 McCullough Robertson, Brisbane. Journal of Law and Medicine, 133. He can be contacted at 21 Geoffrey Standen ‘The Expert Witness’ [email protected]. (1993) Building and Construction Law, 80–81. The author would like to thank Alex 22 John Cooke, ‘Expert Evidence – Power, special counsel of McCullough Objectivity, Subjectivity and Advocacy’ (2005) Australian Construction Law Robertson and Aisling O’Kane, Newsletter, 26–27. research clerk of McCullough 23 See n 1 above. Robertson, for their assistance in the 24 Ibid. preparation of this article. Credit: Profit_Image
Polina Chtchelok The key steps to successful ESPCs Corporate Advisors, Santa Cruz De La Sierra project establishment Aarta Alkarimi Chrysalis, Dubai Introduction • understanding the bidding process; Phillip • identifying the resources required; and Greenham This article was prepared by the Project • identifying the financial structure. Establishment Subcommittee1 to summarise JBM Advisory, the key operational, legal and financial issues Melbourne to consider and steps to take when launching Identifying, allocating and managing Tuomas a major infrastructure or construction project. imperatives and risks Lehtinen The intention is that this article serves as a ‘thought starter’ or the basis for a project Every project will carry with it certain key Castrén & Snellman, imperatives and risks. Identifying these Helsinki specific check-list, adaptable to all markets. It should not be considered in any way as a will assist in designing project documents comprehensive guide. (both the agreement and the technical The steps discussed in this article are: documentation), management and review • identifying, allocating and managing processes, and risk management strategies imperatives and risks; that support the project and enhance the • understanding the context; prospects of project success. • defining the project structure; There are three major project imperatives • parties to a project; that must be met for a successful project:
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• Quality: This concerns the quality of both Difficulties may arise if these red-line issues the design and construction. A well-designed are not identified and accommodated in project that caters to the needs of the client the project structure and project documents and is built to the specified standards will (agreement and technical documentation). determine a project’s long-term success. • Cost: This concerns controlling costs while Remember the forgotten risk achieving the requisite level of quality. This is fundamental to the success of the project in The risk that a risk management strategy will terms of financial performance and return fail is often overlooked. For example, the on investment. party who bears a risk in the first instance may • Time: This covers the timely delivery and become insolvent. This ‘forgotten risk’ should completion of a project. Prolonged durations be taken into account with the other key risks. directly affect costs (prolonged project team and equipment deployment) and financing (ability to generate revenue in time to repay Undertake a traditional risk analysis loans). Very tight durations can adversely The traditional risk analysis involves reflection affect quality, leading to potentially lower on the probability and consequences of an returns (sale or rent prices and operations anticipated risk occurring. This often involves or maintenance costs). a three or five-scale ranking for each of Every endeavour has associated risks. Much these characteristics. Another characteristic effort is invested in identifying, allocating should also be considered: the ‘amenability and managing risk. However, this effort is not of the risk to control’. Consideration of this always reflected in an improved risk profile characteristic can remind the team that some for a project. In order to derive greater events could have a negative impact on the value from the identification, allocation and project and little can be done to prevent management of risk the following approach can that occurring. Mitigation of consequence, be implemented. rather than avoidance of occurrence, might be the most appropriate response in Identify key risks these circumstances. A frugal but intelligent approach should be Identify the natural owner of each risk taken. It is often the case that many dozens of risks are identified and complex risk matrices The natural owner of the risk might be prepared. This approach can result in losing regarded as the participant who will bear sight of the key risks and a sense that the ‘risk the burden of the risk if no steps are taken management task’ has been completed. This, in in relation to the reallocation of the risk. turn, can result in an abdication of the real risk There may be multiple owners of a risk. For management task – the task of being alert to and example, in relation to the risk of defective ready to anticipate or respond to risks during work, the contractor may be regarded as the the life of the project. The risks that might natural owner of the risk. However, if the affect a project will inevitably vary from project contractor does not repair the defective work, to project; however, there are recurring themes: the consequences are left to be dealt with by • Resource availability: The availability of the client. The client might then be regarded adequate personnel (both in terms of as the owner of that risk (ie, the risk of non- quantity and expertise), as well as physical compliance by the contractor). Identifying the resources, is important and not always natural owner of the risk is important in terms analysed sufficiently. of considering the allocation, management and • Senior decision-maker availability: As a mitigation of the risk. subset of resource availability, the availability of senior decision-makers, at critical times, is often overlooked. Identify how each risk is to be dealt with • Political will or corporate policy: All The traditional techniques available for organisations, whether public or private, dealing with risks include: will have certain ‘red lines’ that they will not • neutralising the risk; cross (or to do so involves significant time • bearing the risk; and effort), for example, a defined period • transferring the risk; or for the payment of bills by the client. • mitigating the risk.
32 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 The implementation of the various mitigation and Understanding the context management strategies is more important than the In order to efficiently identify, allocate and manage risks it is necessary to develop a clear development of the risk management plan. understanding of the context in which the project will be executed, which in turn will allow for the development of a schedule and budget reflecting This list omits one common technique: ignoring the activities to take place and factors that might the risk. Ignoring the risk is effectively bearing affect these activities. The analysis of the project’s the risk, but usually doing so in ignorance of context should take into consideration, as a that fact. It often arises as a result of the ebb minimum, the following aspects: and flow of negotiation. A risk that may have been treated in an explicit way (using one of the four techniques) becomes the subject of Physical location negotiation with the possible outcome that the initial technique is abandoned, but it is Considering the geographical location of the not replaced with any other technique. This site, a list of possible physical obstacles to be dynamic can be one of the significant causes verified and how the site will be accessed for the of project risk being inadequately managed. entire duration of the project must be defined.
Offshore versus onshore Document the strategy If the project is located offshore, the water depth for works and installations and windows If the risk management plan is not of adverse weather will be the primary factors documented, it is less likely that the plan will affecting the feasibility of the project and the be implemented as conceived. schedule. If the project is located onshore, a wide range of more complex factors may Implement the strategy potentially affect the project schedule, whether it is a brownfield or greenfield site: mountains In many instances, this process is followed and, (eg, limited availability of flat surfaces, seismic on paper, there is a rational and appropriate zones and landslides); deserts (eg, heat, risk management strategy. However, many of sandstorms and the availability of water); the intended mitigation or management steps rivers (eg, flooding and logistics for crossings); are not actually taken. The focus on risk and tropical forest (eg, protected zones and the investment of relevant resources sometimes accessibility); arctic zone (extreme cold); and ceases when the project documents are executed proximity of population (urban zoning and or soon thereafter as project delivery picks infill) to the project area. Depending on the up momentum. The implementation of the site location, thought must also be given to the various mitigation and management strategies likelihood of possible archaeological findings is more important than the development of the at or near the project site. In both cases, it risk management plan. is necessary to examine and, as applicable, The mitigation and management strategies undertake project impact studies (which may should, at least, focus on ensuring that: be required in any case by local legislation) • good communication channels are with respect to the project impact on the established between various project’s teams; surrounding flora, fauna and marine life. • each team understands its role and role of other teams; Access to the project site • all the teams receive adequate training in The accessibility of the project site must be contract management and have a sound examined and defined to prepare a realistic understanding of implications of decisions project execution plan (PEP) and schedule. taken due to the speed of the project and schedule pressure; Access by water • the decision-making process takes into consideration all the actors concerned; and For offshore projects, it is necessary to verify if • response actions and responsibilities during there are any restrictions for access by vessels an emergency or a force majeure event are bearing a flag of particular countries. As defined and known to all teams. mentioned above, adverse weather patterns that could affect offshore works must be taken into account when vessel(s) are reserved.
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Consideration should also be given to the it may be necessary to negotiate the right of location and capacity of the nearest ports, way. The negotiations of right of way could be including the size of ships that can enter lengthy and, in some countries, the approval and whether dredging is required so that process for new road construction could also the vessel(s) necessary for the execution of take a substantial amount of time and most the project can enter the port. For onshore likely be subject to extensive auditing by local projects, consideration must be given to the authorities or other governmental entities. proximity of navigable waterways and existing Once again, weather should not be forgotten, as piers or the possibility of constructing a during certain periods in tropical countries road pier specifically for the project in order to access might not be possible due to flooding deliver construction material, equipment and and torrential rain, or, in colder climates, access prefabricated modules. It is also necessary to might be restricted due to heavy snowfall. verify whether local regulations might prevent Railways the use of waterways for the transport of material or equipment due to environmental or other The use of railways as part of an overall access reasons. In both offshore and onshore projects, and transport plan for the project could care must be taken in the selection of flotel, be considered, depending on the available barges, rigs, support vessels, and so on. The existing infrastructure. However, caution must age of the vessel and its availability in line with be exercised as this can pose some schedule the project schedule should be determined at restrictions and disruptions may occur (eg, the beginning of the project; crew rotations if a scheduled delivery to the train terminal should be defined, taking into account the is late and the delivery to the project site applicable labour laws; and depending on the must be rescheduled, which is restricted by route the vessels will be taking, necessary security overall traffic). Also, railways in the majority measures should be considered. of countries are heavily unionised and overall operation can be affected by strikes. Depending Access by land on the location of the project site, consideration can be given to the construction of a railway to Roads access the site. However, the financial feasibility If the project is to be accessed by road, it is and collaboration with local government would important to verify whether the existing roads have to be taken into account. are fit for the transport of heavy machinery, equipment and construction material. In Available public infrastructure particular, it must be verified whether there are Available infrastructure plays a significant part applicable regulations that would affect the days in the definition of the project schedule and and hours during which the transport of heavy overall execution strategy. Developed countries equipment or large loads of material may be might have the necessary infrastructure, carried out and whether it is necessary to engage but will be heavily regulated with respect to police escorts or obtain special permits from environmental and population effects as a result local authorities. It is also important to consider of transport and construction activities. The lack whether existing roads require modification or if of infrastructure in developing countries can new roads should be constructed. As to existing add significant costs to the project budget, but at roads, even if at the onset of a project it is not the same time can be used as leverage in order to yet known whether existing roads are sufficient obtain project approval or specific waivers from to support the size and weight of the equipment local government in exchange for investment in or material to be transported (normally this is infrastructure as part of the project. However, if determined at the end of the basic engineering a project includes public infrastructure works as stage), it is prudent to examine the applicable part of its scope, this can be subject to stringent regulations with respect to road modifications. regulations and the approval process, as well Alternative routes for project site access should as auditing by public authorities, may impact also be identified in the case of unforeseeable significantly the overall project schedule. circumstances (eg, the size of an equipment package changes and it will not pass under certain bridges). Construction of new roads Political atmosphere should be discussed in collaboration with local In addition to the physical setting of a project, authorities where necessary. Applicable laws another key consideration at the outset of must be examined, as well as the areas where a project is the political atmosphere of the
34 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 country, region or city where the project will be other cultures) and the internal regulations of carried out. The local laws might require that the the companies involved in the project. foreign company executing the project can only do so in partnership with the government in the Currency stability form of public–private partnerships, which can Depending on local requirements, payments be heavily regulated and may be required to pass may be required in a specific currency. In such through numerous approval gates. The project cases, it might be possible to incorporate a might be considered as a strategic project by mechanism into the contract to offset the effects the government and local laws might stipulate of exchange rate fluctuation such as hedging or, that delays in the projects that are of strategic if permitted by local legislation, implement an nature could be considered as damaging to the invoicing system with amounts stated in required economy and carry prosecution under criminal currency and project currency. law provisions. Due to elections taking place, a project approved under one government Sanctions in place might be suspended or cancelled under a newly If the project is located in a country that elected government. If a project is located in is subject to some form of sanctions, these a socialist country, the risk of nationalisation sanctions could impede the sourcing of or appropriation may need to be analysed in construction material and equipment, entry the light of the overall political situation in of personnel of specific nationalities, acquiring the country and the long-term plans of the required insurance and so on. government. A full analysis of the political atmosphere should, as a minimum, comprise Stability of the legal framework the following: The stability of the legal system should be considered, especially with respect to laws Level of control exercised by the relating to employment and taxation, as well as government or governmental entities local corporate obligations in the case in which All project activities to be performed need to international parties involved in the project are be analysed with respect to whether and in what required to be commercially registered locally. form they are subject to control by a particular From the perspective of the project owner, it is governmental entity and advice on applicable also necessary to examine the possibility of being local laws should be obtained at the onset of the held responsible for any default on payments to project, including applicable laws with respect subcontractors by the main contractor. to taxation; employment; health, safety and environment (HSE); and any permits required Specific requirements for local content to proceed with the project. Some countries Local content requirements (eg, requirements are very stringent with respect to reporting and with respect to the number of local personnel auditing by various governmental entities, and to be employed, the tonnage of locally the invitation to tender by a public authority produced bulk material to be used and the might stipulate that the bidder must accept the tonnage of bulk material to be fabricated contract as is without any qualifications. locally) can be either imposed by law or imposed by the government or project owner Corruption for a specific project. Depending on the size Prior to the commencement of the project, of the project and the applicable local content the country should be examined in light of requirements, waivers may be required. corruption reports issued by the United Nations, World Bank, the Organisation for Economic Co- Employment of foreigners operation and Development and so on, as well If the project requires personnel with a specific as whether the host country is a signatory to the set of skills, consider restrictions regarding Anti-Bribery Convention. The applicable anti- employment of foreign nationals that may limit corruption and anti-bribery laws of the home the pool of specialists available for the project. country of the parties executing the project The labour laws of certain countries permit only should also be considered. Mechanisms for a certain percentage of the total workforce to be preventing corruption should be implemented foreigners or establish a visa quota for the total for the entire life of the project, taking into number of foreigners that can work in a country. account local particularities (eg, gift giving In order to mitigate this risk and the adverse effect before starting meetings is the norm in Asian on the execution of the project, the following cultures, but could be considered corruption in
CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 35 FEATURE ARTICLE options should be considered: the possibility of [T]he political atmosphere is relevant in a number obtaining a waiver for the project, employing personnel through in-country employment of ways and it may be advisable to employ a agencies, development and training of local personnel, and so on. This risk would need to be government liaison or lobbyist to mitigate examined and addressed in light of the project inherent risk. duration and the overall project needs, as well as economic considerations, including the cost Specific legal considerations of employing foreign personnel versus training local personnel. In addition to physical location and political aspects affecting the successful execution Local population of the project, the third facet that must The influence of the persons and businesses be considered in full is the specific legal directly or indirectly affected by the project considerations that have an impact on the should not be forgotten. The way in which overall day-to-day operations of the project. the project is presented to the ‘neighbours’, including public announcements and Company registration consultations with local businesses and Local legislation or project bid documentation landowners, should be carefully considered, needs to be fully evaluated in order to ensure as adjacent landowners, businessowners and that the project execution strategy incorporates registered voters might oppose the project. the creation of any legal entity necessary to The access to the site by heavy machinery and execute the project and that the governing the effect of an increase in traffic should be corporate policies allow for the creation of analysed and mitigating measures proposed such an entity. It should also be verified that and implemented. It might be necessary to the documents that will be required from the negotiate right of way and the project budget parent company are in order. Depending on needs to include a provision for corresponding the country, it is necessary to analyse, in line compensation, which may be calculated with with the overall corporate strategy, if there is an reference to applicable taking or condemnation intention to only participate in one project or laws. In some countries, the execution of a establish a long-term presence in the country; project requires specific consultation with or as such, consideration should be given to approval by the local indigenous population. the establishment of a standalone company It may be necessary to pay compensation to as opposed to the creation of a subsidiary indigenous communities or to employ (and or affiliate, or entering into a joint venture in some cases provide training to) a certain agreement with a local company. There might number of local workers. In some cases, a be a pre-existing legal requirement that the company that previously carried out a project execution of the project must be done in a in the same area may have created a particular joint venture format with a local entity. The expectation in this respect and the local requirements for local company registration community might block the project until this might not be explicitly mentioned, but may expectation is met by the new project owner or be implicit in other requirements, such as a contractor. It is also important to be aware and requirement to issue bills in accordance with monitor the risk of interference (eg, protests) local tax norms, which requires registration by the local population and what circumstances with tax authorities, which in turn requires the will provoke such interference (eg, the registration of a local commercial entity. With project creating a disturbance to the day-to- respect to company registration, the existence of day activities, an expectation of monetary tax-free zones and the possibility of registering compensation, environmental pollution, etc). the entity that will be executing the project In order to mitigate these risks, it is necessary to in such a zone should be considered. When have in place monitoring practices and ensure registering a local entity, it should be verified the contractor follows up to confirm adherence whether there is a requirement that only a local to project requirements. resident can act as the legal representative of the As mentioned, the political atmosphere is company. When creating a subsidiary or affiliate, relevant in a number of ways and it may be it should be examined whether the revenues advisable to employ a government liaison or earned by such an entity will be subject to an lobbyist to mitigate inherent risk. additional tax imposed upon remittance to the parent company’s country. The time needed
36 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 for local company registration is a risk factor, executing the project (most often, the project as in some cases the public project bidding owner) even though the person was hired only requirements have very tight deadlines for the for the duration of the project. presentation of the paperwork certifying the existence of the locally registered company. Permits, licences and certification All the activities that will be performed during Tax obligations the life of the project need to be defined This is a complex set of issues and must take into from the outset and the requirements for consideration the requirements with respect corresponding permits, licences and specific to municipal, departmental and national registrations need to be analysed. Depending government-imposed taxes, as applicable. on the country, there might exist the possibility Depending on the project activity, particular of overlapping requirements for permits royalties and activity-specific taxes may need to due to autonomy given to departments and be paid. From a tax perspective, a joint venture municipalities and, consequently, different could be an attractive mechanism as each party authorities will be issuing a permit for the same is responsible for its own taxes. Tax declarations activity. As projects tend to be intensive in terms are often based on a calendar applicable to the of pressure to complete on time, projects are type of industry to which the party executing quite often penalised by the relevant authorities the project belongs or the type of activity the with respect to the omission to renew required party lists in its commercial registration as permits, licences, and so on. being its principal activity. Withholding tax, value added tax, importation tax and so on Health, safety and environmental also need to be taken into consideration with compliance respect to the definition of the project budget. In addition to overall legal compliance, the non- The project contract should contain a provision fulfilment of obligations carries heavy penalties regarding who bears the costs in the case of and fines imposed by the applicable laws or significant changes in the taxes applicable to regulations and, in some cases, could include the project during the project duration. criminal responsibility. To mitigate these risks, it is necessary to consider conducting a gap Law of the contract analysis of the project technical specifications The law of the contract and the applicable and procedures in terms of compatibility with laws must be clearly defined in the contract. applicable HSE laws, regulations and norms The contract should contain a provision for the duration of the project. This analysis regarding who bears the increment in the should be ongoing so that the applicability of contract price due to changes in the laws new legislation to the activities of the project governing project execution. is identified. The main aspects, discussed in this section, Labour law of understanding and defining the context in Labour law obligation is another risk factor which the project will be executed, together that can have an impact on the project budget, with the definition of the associated risks and schedule and, more importantly, claims against mitigation actions, should be incorporated the project owner. The aspects that have a direct into the PEP and other relevant project impact on the budget are mandatory annual technical and legal documentation in order salary increases and bonuses, and mandatory for the risk management strategy to succeed. health insurance and pension contributions. Depending on the type of employment contract Defining the project structure in place, the project owner or contractor might need to act as an agent for the collection of The PEP is the backbone of every project and employee withholding taxes and declare and pay should: clearly describe the project; identify these taxes to the tax office. The schedule of the the key parties with corresponding roles and project could be affected by legal requirements responsibilities; state the manner and strategies concerning leave and working hours. However, that will be employed to complete the project in the aspect that carries higher risk for the project an orderly, economical, timely and safe way; and is the actual form of the employment contract, include the risk management strategy as defined which needs to be drafted in such way that it by the risk analysis and analysis of the context in avoids the risk of a person claiming that the which the project will be executed. The project’s person is a permanent employee of the company contract, general and technical specifications
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should be checked for inconsistencies in Parties to a project order to mitigate the risk of claims during the execution stage, for example, document review In a construction project, there are typically and approval process, work hours, site access several parties involved and each has a role to and audits. play. These parties can be from either the Complex or large projects may evolve over public sector or private sector and are not time, requiring updates to the PEP to ensure its necessarily limited to the parties signing continued relevance to the project. The project the main construction contract, but could schedule included in the PEP needs to reflect also include lenders, governmental entities, activities identified as possible contributors to contractors, subcontractors and suppliers. delay and take into consideration the context To ensure a common understanding of the project, for example, long lead items, between the parties involved in a project, the obtaining permits from authorities, obtaining following issues should be considered: visas for personnel, mobilisation, customs clearances and negotiation of rights of way with Core business local landowners. The project budget needs to include the actual project costs and should One important determination to be made incorporate a provision for risks, such as cost is whether the core business of the client is increase due to possible changes in law and relevant to the project or has no direct link annual salary increases. to the project. This is relevant for putting in The packaging and procurement strategy place mitigating measures in order to prevent included in the PEP needs to be in line with the project disruption. In the case of a client with delivery time of long lead items, local content little experience in the subject matter of the requirements, if applicable, and based on the project, the schedule should reflect the float material and equipment available locally, in the for the additional time required to provide region or to be imported. the necessary explanations and training to All projects come to an end and a number of the client, for example, construction of a issues always arise at that moment no matter nuclear power plant for a government client. how well the project execution is planned and The overall execution plan of the contractor performed. It is therefore imperative that the should accommodate the level and extent of PEP and contract clearly reflect the process of supervision and control from the project owner. project close-out and handover, issuance of applicable certification, transfer of ownership Primary goals (including takeover by the project owner), warranties, provision of the required operation Differences in goals between parties can lead to and maintenance manuals, spare parts, transfer disruptions in project execution and subsequent of excess bulk material, technical support and claims. It is important to bear in mind that the so on. client’s primary goal is the timely completion The location of a project team can vary of the project in accordance with the applicable considerably based on a project’s geographical criteria, whereas the contractor’s primary goal location, type, scale, complexity and various is timely and full payment. The importance other factors. In today’s globalised world, with of understanding each other’s goals can be ever-increasing ease of communication, it is not illustrated by an example of an oil and gas uncommon for a project to have its team spread company under strict contractual obligations across several countries. For example, a project with respect to the production start day due in Dubai may have its client based both in Dubai to its contract or licence with a particular and Toronto, the architects in London and government. Thus, its goal is the completion of structural engineers in Chicago, while the the project on time. However, for the contractor contractor would, by necessity, need to be performing the project, the primary goal is to situated at or near the project site. It is also quite be paid on time so as to ensure that it can meet common for specialist contractors, fabricators its obligations to suppliers and subcontractors. and suppliers to be spread across the world, Therefore, in the case that the client delays often with their own complex international payment to the contractor due to a contractual supply chains. In this respect, the PEP needs to provision, this can negatively affect the project, address how relationships between various as the contractor might not have sufficient teams are managed to ensure that timely and liquidity to ensure the progress of the works. accurate communication occurs.
38 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 Credit: Chaay_Tee/Shutterstock
Risk appetite with the timely completion of the project and it is important to understand what impact a The amount and type of risk that each party delay can have on the client. For example, was involved in a project is prepared to undertake a bridge construction an election promise? Is must be considered. Risk appetite is a major the first gas production and thus the timeline consideration when determining whether a for gas processing plant construction governed party is likely to pull out of a contract should by the gas production licence? The client’s there be a change in circumstances. prerogative is to incorporate in the project contract the mechanisms that will protect Culture its interests and provide remedies in case of a delay. The goal of a client is to maximise Company culture includes a variety of profits for the shareholders or create benefit elements, such as work environment, company for the country and such a client would not be mission, value, ethics, expectations, goals and inclined to spend more than is necessary on the work-life balance. Understanding each party’s project. Depending on the project structure company culture is important to prevent (eg, whether the contract is design-build and possible miscommunication. whether the project owner employs a project The principal traits of the main parties to a manager), the client may define the basis of construction project are outlined in the the project, choose the contractor, provide following. These profiles are to be considered observations on the compliance of the project depending on the type of contract used for with pre-defined criteria and monitor the the project, which party is the owner and progress of the project. A responsible client which is the contractor. will monitor and review the performance of the main contractor and the progress of the project Owner profile without usurping responsibility or transferring Whether the client is a private or public entity risk from the contractor. Depending on can make a significant difference in terms the location of the project, care should be of the financing of the project, the client’s exercised with respect to the selection of the goals and the role the client takes in any given contractor, as in some cases local government project. However, all clients are concerned might impose a contractor and such an
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imposition would be difficult to accommodate of recourse; deed of liability; and insurance in a client’s internal bid evaluation procedures. from subcontractors.
Main contractor profile Third parties’ profile The selection of the main contractor plays a There may be several third parties, such as significant part in the overall success of the governmental entities, suppliers, experts and project. Whether the main contractor is a local subcontractors, that are not directly party to the or international company may make a difference project contract, but are in some way connected to in terms of resources. A local contractor might the project. With respect to the project execution, not have the necessary resources available for the it is necessary to consider which project activity completion of a large-scale project or experience. could be affected by a particular third party (eg, On the other hand, an international contractor obtaining the necessary permits on time to avoid might have the requisite resources in terms of fines from the responsible governmental entity labour and technical expertise but not have the or subcontractors’ failure to adequately address necessary knowledge of local specifics relevant enquiries), and what would be necessary from to the project. In such cases, it is not uncommon the project execution perspective to ensure that that an international contractor will work in a the said third party would not affect the project, joint venture with a domestic contractor. From for example, including provisions in the contract the client’s perspective, such an arrangement that the contractor must protect and indemnify needs to be carefully examined. How is the joint the client from claims of the suppliers. It is also venture structured with respect to each party’s necessary to consider whether it is possible for responsibilities? What is each party’s contribution a third party to make a claim against the client to the joint venture? Which party is designated under local laws. as the joint venture’s leader? In selecting a main contractor, the contractor’s experience with Lender profile similar projects is of the utmost importance and is The lender could either be a bank, syndicate a key indicator of whether a project bid is realistic of banks, equity investor or multilateral and whether the contractor has the necessary agency. The primary concern of the lender skills and resources to execute the project or any is to make a profit from its investment. In of its specific parts. Another important aspect providing financing for the project, the lender is what measures the contractor has in place in is concerned with: order to guarantee the completion of the project. • whether the borrower has the financial As a mitigating measure, the client should request resources required for project execution at a minimum: and is able to meet all corresponding • a parent company guarantee: the financial obligations; health of the parent company needs to • the borrower’s commitment to the project be proven to the client, as well as that and whether it has the relevant expertise the parent company would be able to for the project; complete the work in the case of the • the borrower’s independence from the default of the contractor; and influence of local government where the • a performance bank guarantee (or a project is executed; surety bond, as the case might be): this • the clarity of the bidding process and should be executable on demand with the selection of an independent contractor; value defined in proportion to the value • a clearly defined completion date for of the project. the project; The necessity of incorporating into the contract • how liquidated damages or penalties are the requirement for the contractor to furnish defined in the contract, especially with other bonds, such as bid bonds, payment bonds respect to delay; or maintenance bonds, should be considered • the definition of force majeure and how the on a case-by-case basis with respect to the risks responsibilities of the parties to the contract of the project, the subject matter of the project are split should a force majeure event occur; and the policies of the client. For example, • the political stability of the country typically, an oil and gas operator would where the project is executed and the request the following: bank performance associated political risks that might affect guarantee; advance payment recovery bank project completion (eg, expropriation guarantee; parent company guarantee; and nationalisation, currency stability, signature of a deed of mutual indemnity; waiver government friendliness or hostility that
40 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 The main risk for project execution is the political which type of insurance (eg, contractor’s all risk), the coverage amounts and, vis-à-vis the stability of the country and the associated political contractor, the rating of the entity providing insurance. These provisions will be checked risks that might affect project completion. by the lender and need to be aligned with possible requirements of local legislation. affects the issuance of required permits With respect to insurance provided by the and licences and the frequency of strikes); contractor, it is important to also incorporate • whether project guarantees and bonds in the contract mitigating measures that will are of a sufficient amount to cover the address the following: completion of the project in the case of • the duration of the insurance policy is default by the contractor; and aligned with the project duration and • whether the borrower might be undertaking support after the project completion; other activities aside from the project for • the policy covers the risks associated with which finance has been provided and thus the location and context in which the the funds might not be used entirely for the project will be executed; and purpose for which they have been provided. • voidability of the policy by act or omission To mitigate these concerns, apart from the on the part of the contractor. verification of the financial health of the borrower, the lender will want to play a major part in adjusting rights and obligations of the Understanding the bidding process parties through a review of the project terms Call for bids and tenders is a specific and conditions, imposing its own conditions procedure for generating competing offers and reviewing the enforceability of the project for a project. The bidding process starts with contract as a whole. The lender will also be the client preparing the project description concerned with how well the project is insured documentation regarding site conditions, against losses. technical requirements, time constraints, contractual terms and conditions and so on. The Government profile call for bids and tenders package must allow the The role of local government depends on the bidder to understand the scope of the project type and significance of project and varies and submit the bid. In the case of governmental from being a mere observer or regulator to procurement, bidding could be governed by being the client or concessionaire. Typically, detailed procurement codes and policies that the government’s primary role is to issue would require strict adherence and raise the risk the required permits and licences for the of non-responsiveness. Contractors must then duration of the project. Whether the project is provide project-specific bids in accordance with supported or interfered with depends on the the client’s specifications and with the lowest interest of the government in attracting foreign responsible economical offer. investment and whether legislation or other Generally, before initiating a tender, a client tools are in place to support such investment will survey pre-selected companies and, and to provide an environment favourable to depending on the outcome of the pre- foreign investment. qualification survey, define a list of the The main risk for project execution is the companies to be invited to participate in a political stability of the country and the tender. In some cases, the company rules or associated political risks that might affect applicable laws require that a certain number project completion (eg, expropriation and of companies are contacted for a particular nationalisation, currency stability, government type of project. In such cases, some companies friendliness or hostility that affects the issuance could be invited to participate merely in order of required permits and licences, frequency of to satisfy these requirements. For the strikes in the country and the likelihood of a identification of pre-qualified bidders for a change of government). given tender, consideration should be given as to: whether the bidders are qualified from a Insurer profile technical perspective; the proximity of the Principally, an insurer’s interest is to make a bidders to the project location and the location profit by collecting premiums and avoiding from which materials will be sourced; and indemnifications. The project contract should overall capability in terms of resources and clearly define which party is responsible for financial liquidity.
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Care should also be exercised in ensuring shared with others to ensure that no one is that the contract included in the invitation to put in an advantageous position. bid or tender reflects the position of the lender (in the case of a project being financed) and the client’s project insurer. Disputes between Time required for sending the bid in parties during project execution will always physical form happen. Therefore, the contract should also Care should be exercised if the bid is define a clear dispute resolution mechanism, required to be presented in physical form which could be a combination of the following: by a certain date and time, taking into an initial step-by-step procedure of dispute consideration the difference in public presentation and a resolution process between holidays among various countries. the parties, including the dispute review board setup (if the project owner’s policies permit the use of such a board), mediation, arbitration Qualifications and clarifications or litigation (now almost uncommon due to The overall bid strategy should take into time and cost considerations). Moreover, the consideration the ultimate goal of the dispute resolution mechanisms should cover bidder and achieve a balance of commercial the language to be used in the dispute considerations and the risks that a bidder proceedings, the location and the governing is willing to take. When submitting institution for the dispute resolution. If the qualifications and clarifications and project owner is a governmental entity, it is consequently proceeding with the contract likely that the dispute resolution process would negotiations, the bidder needs to have a be governed by specific legislation. clear definition with respect to what points From the project owner’s perspective, the are necessary to be negotiated with the client risk with the bidding process is ensuring in terms of the bidder’s strategy for project that only compliant bids are accepted, execution or are actually coming from treating all the bids consistently and fairly, the specific corporate policies and which and that the bid analysis matrix is well aspects are nice to have but not essential defined and consequently results in the for the project execution and could be used selection of the contractor that will perform as bargaining chips for the points that are the project on time, within budget and necessary. If during the contract negotiation compliant with all the legal, technical, round an agreement cannot be reached by quality and performance requirements. the parties, then an option could be to price From the contractor’s perspective, the the disputed qualifications and submit the following points should be considered (in revised commercial offer upon the project addition to the principal requirement that owner’s request. the bid submitted is compliant with the Previously concluded contracts between the bid requirements): parties should be referred to for return of experience and the reasons why specific Authority required of the person points were negotiated and agreed in a submitting the bid particular way. If the parties have a frame agreement signed, it would be difficult to Depending on the legislation governing deviate from pre-agreed terms and conditions, government projects, the person signing even though the circumstances of the project the bid submission documentation may might be driving this to happen, usually in the be required to hold a specific power of case of the contractor. attorney, even if the jurisdiction where the company is domiciled does not have such a requirement (such a requirement is more Identifying the resources required common in projects where the owner is a With respect to project structure and the governmental entity). definition of project execution, it is necessary to examine in great detail the resources available: Timeframe for clarification from the client’s perspective, the supervision of the contractor, actual contractors and The bid clarification period is normally quite the financing for the project; and from the short and it is not uncommon that the answer contractor’s perspective, the actual physical to a question submitted by one bidder will be
42 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 resources, suppliers and subcontractors in availability and sourcing of bulk material relation to the client’s specifications and and specific equipment, for example, the requirements for the project. availability of a specific diameter of piping and Depending on the client requirements a long wait on generator orders. (which might be dictated by the requirements The importation and exportation imposed upon the client by local government), procedures of the project location should be the client could provide a list of approved carefully considered. The temporary subcontractors or provide guidelines for the importation of the equipment required for contractor to submit its own list of project construction versus permanent subcontractors for approval. In such a case, the importation and the consequent disposal contractor runs the risk that the subcontractors after the completion of the project should be will know that they are ‘imposed’ by the client considered in terms of the importation and and can use this position to their advantage in exit taxes to be paid, complexity of the process terms of pricing or responsiveness to enquiries and time required for customs clearance. The from the contractor. Moreover, a contractor same consideration applies in the context of could be placed at a disadvantage if some of turbines or other similar equipment provided the client’s approved subcontractors have to a plant or facilities on the basis of a lease alliances with another contractor submitting a contract. The actual execution of the terms of bid for the project. such a contract might be impeded by local It is also important to ensure that the importation laws not being advanced enough procurement policies between the parties to include such a case. involved in the project are aligned. For specific In developing countries, the cost of transport packages or equipment, the client may require can be quite high as local companies might be that it reviews and approves the bids submitted required to invest in new trucks or ships, passing by the suppliers or subcontractor to the main this cost on to the project. Local companies contractor, and this approval time can affect might even consider charging exorbitant prices the time required for placing orders. due to the notion that international companies Accordingly, a specific time period for the have money and will pay. client’s written approval needs to be specified, To start a project, the client must have finances giving rise to deemed approval if comments available to pay the contractor and the contractor are not received in a timely manner. In must have finances available to mobilise addition, governmental procurement personnel, equipment and place initial orders procedures and policies might be quite and, accordingly, the parties need to discuss the cumbersome, thus it can affect the schedule project milestones and associated mobilisation for the project. The procurement process, no and other advanced payments at the outset. matter how well defined and planned, is not With respect to the identification of risk free and needs to have measures put in resources, one final point to consider is the place to address the following risks: feasibility and cost of maintenance of • favouritism with respect to treatment of equipment integrated into the project some subcontractors; design, as well as the training of local • security of information especially when personnel to operate it. The project might dealing with sensitive information, such as be the design and construction of a state-of- commercial offers; the-art gondola system in the city of Mexico, • no response from subcontractors’ suppliers but if the motors powering this system are due to project location or their workload; and German-made and if it takes three months to • offers that are not in accordance with the receive spare parts, the stoppage of this client’s specifications. system for such an amount of time would be The overall industrial development level of the considered as a failure of the project. country where the project is to be executed should be considered. What equipment is readily available? Are bulk materials proximate? Identifying the financial structure Other examples include the client’s safety The financial structure for a project needs to specification call for a specific type of scaffolding be well defined in order to avoid delays during to be used or personal protective equipment. project execution due to late payments, From the global perspective, depending on poor cashflow management or insufficient various activities worldwide, project planning financial resources, and to mitigate the needs to also take into consideration the effects of financial market instability.
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The financial structure for a project should Note take into consideration the following factors: 1 The Project Establishment Subcommittee is a subcommittee of the International Construction • the funds for the project provided by a Projects Committee of the International Bar lender and the specific terms of the loan Association. Its officers at the time of preparation with respect to when the funds are available of this article were Tuomas Lehtinen, Co-Chair; and when and how the loan must be repaid; Phillip Greenham, Co-Chair; Aarta Alkarimi, Co- • the cost of mobilisation and the funds Vice Chair; and Polina Chtchelok, Co-Vice Chair. required by the contractor with respect thereof; • progress measurement mechanisms and the definition and agreement on the milestones in line with the cashflow requirements; • in the case that the project owner is a governmental entity, the effect of the approval of expenditure that in turn extends the payment period for the payment of bills presented by the contractor; and • the time required to transfer funds and fund clearance if payments are required to be made in the country where the project is executed. This article was collaboratively written by: Polina Chtchelok, a co-founding partner of ESPCs Final words Corporate Advisors, Santa Cruz De La Sierra, who can be contacted at [email protected]; The success of setting up a project depends Aarta Alkarimi, a partner at Chrysalis, Dubai, who on the identification and analysis of the can be contacted at [email protected]; project activities, the associated risks and Phillip Greenham, a partner at JBM Advisory, the mitigating measures that can be put in Melbourne, who can be contacted at [email protected]; and place. These mitigating measures and the risk Tuomas Lehtinen, a partner at Castrén & Snellman, analysis cannot be static. They need to evolve Helsinki, who can be contacted at as the project progresses and be adjusted in [email protected], under the overall line with obstacles or events encountered coordination and efforts of Polina Chtchelok. during project execution.
44 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019
FEATURE ARTICLE
Credit: chase4concept/Shutterstock
Jane Issues arising on termination of Davies Evans 3 Verulam Buildings, London a construction contract Bruce Reynolds Singleton Urquhart Reynolds Vogel, Toronto e were privileged to be tasked with involvement of local courts. Again, it is not Wchairing the first International uncommon in our experience, for Owners to Construction Projects (ICP) Committee ‘buy out’ a non-performing Contractor so they session at the IBA Annual Conference in leave quickly and on good terms, allowing the Rome on Tuesday 9 October 2018, with our project to be continued by others. designated topic being ‘Issues arising on Termination cases are interesting because, termination of a construction contract’. unlike many construction cases, they often Both our practices have seen a sharp have an ‘all or nothing’ outcome; the upturn in the number of termination-related termination is either valid or it is not and the disputes in recent years. These disputes have assessment of quantum is completely different included situations where: depending on the finding on liability. • contracts were terminated on spurious Additionally, the law on termination can vary grounds because the Owner found someone dramatically from jurisdiction to jurisdiction, cheaper or simply decided that they did not and different common and civil law jurisdictions like their original contractor anymore; can take very different approaches to assessing • contracts were terminated by the Owner the validity of a termination from other, closely using termination for convenience related, common and civil law jurisdictions. provisions and then using someone else to We therefore asked our panellists to complete the works; and address three issues: • contractors have terminated (or threatened • first, comparing termination for default to to terminate) for prolonged non-payment, termination for convenience; or the Owner’s alleged failure to provide • second, considering what requirements sufficient appropriate information about exist as to the substance and form of a their financial arrangements. termination notice; and It is also increasingly common in our experience • third, looking at the legal consequences for Owners to terminate for convenience of a wrongful termination and in even where there were robust grounds for particular, whether, when, where and terminating for default, simply to ensure that how a Contractor can try to block a the Contractor leaves quickly without the wrongful termination and the claims
46 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 available to a Contractor who is the victim of a wrongful termination. Each issue was addressed by a civil and common law practitioner, and with our panellists located in jurisdictions from Singapore to Scotland (and several in between) we provided a broad overview of the issues from around the world.
Terminating for default versus terminating for convenience
Dimitris Civil law perspective Kourkoumelis Kourkoumelis & construction agreement under civil law termination being affected. However, the Partners, Athens A is a bilateral agreement (‘agreement for contract is not overturned in its entirety work’) and is considered as instantaneous, because it remains applicable as to the agreed where a party delivers the work and the fee, which remains payable to the contractor counterparty the contract price. Thus, the irrespective of the termination. relationship that is created from it, between Upon termination, under Article 700, the the employer and contractor, expires Employer shall pay the contract price, but with the due fulfilment of the parties’ anything the contractor saved due to obligations and is terminated pursuant to termination is deductible from the amount the general reasons for the termination of due, such as expenses not incurred by the all bilateral contracts, such as the mutual contractor, any other works executed during discharge of the contracting parties due to the term of the terminated contract and the accidental inability of any of them to anything else that was wilfully omitted for its fulfil their obligations. However, in practice, benefit. The basic consequence of the construction agreements create a de facto termination, in accordance with Article 700, long-lasting relationship, which is the reason is also the creation of the obligation for the why the law provides for earlier termination contractor to deliver and for the employer to for default or convenience. accept the executed part of the works. Under the Greek Civil Code (GCC), for Besides termination for convenience, the example, the employer is entitled, at any time Employer has the right to terminate the before the physical completion of the works, agreement for good reason. A specific form to terminate the contract for convenience of such right is the right of withdrawal in case (without reason) (Article 700). As regards the of substantially delayed construction. More general law of obligations, this is an important specifically, in the event that the contractor deviation from the standard of permitting delays the commencement of the execution unilateral termination only for default or of the works or, albeit its prompt good reason. commencement, delays the pace of the works The termination provided by Article 700 in a way that makes the prompt completion applies directly after the employer’s of the project impossible, the employer has respective declaration and without notice. the right to withdraw from the contract Upon its exercise, the contract is terminated without waiting for the delivery of the ex nunc and the parties are discharged from project, provided the employer is not the the non-fulfilled obligations, without any one liable for the delay (Article 686). Further, claims that have arisen up to the point of the right of early withdrawal is available to
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the employer irrespective of the existence of main obligation becomes due and payable or the conditions of default of the contractor, wait until it becomes due and payable and any liability on its part or the condition of request the execution of the project and force majeure. For the withdrawal to be valid, compensation for damages for the delay the respective notice must mention the exact pursuant to paragraph 1 of Article 343, or to reasons for it, otherwise it is presumed as a set a reasonable deadline under Article 383 termination of Article 700 since an invalid and, following its expiration, to withdraw withdrawal may be applicable as a termination and request reasonable compensation for convenience upon conversion. pursuant to Article 387, the amount of which The exercise of this right rescinds the will be decided by the court based on criteria contract ex tunc as if the contract was never such as the financial condition of the parties concluded. Consequently, the mutual and the ability to cover the damages from obligations cease to exist while the parties another source, or to request compensation are obliged to return anything delivered in for damages for non-implementation, which accordance with the provisions of unjust covers the positive interest, namely what the enrichment. In the event of such withdrawal, employer would have if the contractor’s the GCC provides for reasonable damages. obligation was fulfilled. The right to withdraw when the works are Comparing termination rights for default substantially delayed is a specific application and for convenience leads to the conclusion of the right to terminate for good cause, that there is a similarity as to the which is recognised in all long-term contracts. requirements for their application, but they Both aforementioned rights are justified by differ in results and consequences. In the the need of each of the parties to terminate event of concurrency, the right of withdrawal the contractual commitment when, due to is preferable, since it discharges the specific incidents and the continuous nature employer from the obligation to pay the of the relationship, it will be against good contract price, provided, however, that the faith to continue it. In the case of withdrawal facts can be proved. under Article 686, a good reason is the Contractor’s default is a circumstance certainty that the project will not be allowing the Employer to terminate the completed within the deadlines at the time agreement under public works contracts as agreed and that this will result in increasing well where the Employer may forfeit the the damages that the employer will suffer. contractor, call on their bonds and seek The exercise of the right under Article 686 further damages. Under public works results in the immediate termination of the contracts, the contractor’s rights to terminate contract with retrospective effect, meaning are limited to delayed payment or non- that the right of the parties to make subsequent payment, as well as in the case of a long-term claims ceases to exist. At the same time, the suspension of works. parties are obliged to return anything delivered up to that moment in accordance with the provisions of unjust enrichment. More specifically, the Contractor, on the one hand, is obliged to return part or all of the fee that they may have received, as well as anything provided to him by the employer for the execution of the project, while the employer must return the value of part of the project that may have been executed, provided that it is not possible to return it as such, especially if it has been incorporated in the project or consumed. Further, withdrawal is always possible when the contractor is in default, that is, liable for the delay in the fulfilment of the obligations under Article 686, as well as in its main obligation to promptly deliver the works. The employer retains its full rights arising from the default. More specifically, the employer may either withdraw before the
48 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 Ian de Vaz Common law perspective WongPartnership, Singapore Termination for default stating that: ‘The Employer shall not terminate the Contract under this Sub- Not every breach of contract gives the Clause, order to execute the Works himself innocent party the right to terminate the or to arrange for the Works to be executed by contract. For most breaches, the remedy for another contractor’ [emphasis added] the innocent party lies in damages. At common law, the innocent party will only be able to terminate a contract if: Electing between common law • the term breached is a ‘condition’ of the termination or contractual termination contract – a condition (or ‘essential term’) is a term of a contract where the intention of Where a party has the right to terminate under the parties to the contract was to designate both common law and contract but elects to that term as one that is so important terminate pursuant to the contract rather than that any breach, regardless of the actual alleging a repudiatory breach, it will be precluded consequences of such a breach, would from claiming ‘loss of bargain’ damages unless entitle the innocent party to terminate the the contract expressly preserves the right to do so. contract. The focus here is not so much on For example, in Phones 4U Ltd (in administration) the consequences of the breach, but on the v EE Ltd [2018] EWHC 49, a claim for damages nature of the term breached; by EE (a mobile network operator) for loss of • there is a sufficiently serious breach of an bargain was rejected because the termination intermediate or innominate term of the notice relied solely on the contractual right to contract – the focus is on the consequences of terminate for convenience. the breach, such as where the breach deprives the non-breaching party of substantially the Compliance with contractual provisions whole benefit of the contract; or • there is a renunciation of the contract by a ‘(a) Termination of the parties’ relationship party – where the party in breach of contract, under the terms of [commercial] contracts is by its words or conduct, unequivocally a serious step. There needs to be substantive conveys to the innocent party that it does not compliance with the contractual provisions to mean to perform the contract any further. achieve an effective contractual termination. In addition to the common law rights of (b) Generally, where notice has to be given termination, parties usually provide in their to effect termination, it needs to be in contracts for circumstances in which each sufficiently clear terms to communicate to party may terminate the contract, for example, the recipient clearly the decision to exercise Clause 15.2 of the FIDIC Silver Book (1999). the contractual right to terminate. These rights operate in addition to common (c) It is a matter of contractual interpretation, law rights to terminate, unless the latter are first, as to what the requirements for the expressly (or impliedly) excluded. notice are and, secondly, whether each and every specific requirement is an Termination for convenience indispensable condition compliance without which the termination cannot be effective. There is no common law right to terminate That interpretation needs to be tempered for convenience. However, most common law by reference to commercial common sense ’ jurisdictions allow parties to contract for the [emphasis added]. right to terminate for convenience. Obrascon Huarte Lain SA v Her Majesty’s Attorney It is an established principle of common General for Gibraltar [2014] EWHC 1028 law that the employer cannot, without clear words allowing it, exercise a power to omit Given that an ineffective or wrongful work in order to employ another contractor termination can amount to a renunciation of to do that work. By extension, it is arguable the contract (which entitles the other party that the employer cannot terminate the to, in turn, terminate the contract and claim contract for convenience so as to give work to damages), the importance of complying with another contractor or to carry out the work contractual procedures cannot be overstated. itself. Clause 15.5 of the FIDIC Silver Book Some practical issues with Clause 15.2 of the (1999) reflects this philosophy by expressly FIDIC Silver Book (1999) are: ‘…the Employer may, upon giving 14 days’ notice to the
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Contractor, terminate the Contract and expel remedies or takes steps to remedy the breach the Contractor from the Site’ [emphasis added]. within the 14 days? Does the Employer then • Exactly how many notices are required under lose the right to terminate? Clause 15.2? Is the Contract automatically These issues have been addressed in the terminated after 14 days or is a further new 2017 Silver Book: here, the Employer notice confirming the termination required will need to first serve a ‘Notice of Intention after 14 days have elapsed? to Terminate’, before serving a ‘Notice of • Does the 14 days’ notice effectively operate as Termination’ if the breach is not remedied. a cure period? What happens if the Contractor Termination notices – substance and form
What requirements are there for the form and substance of a valid termination notice?
Civil law perspective Thomas Stickler Redeker Sellner Dahs, Leipzig How to end a contract under German Law How to end a construction contract under German Law German law provides several possibilities to end a contract. In most cases, these possibilities Until 2002, the ‘normal’ way to end a construction are dealt with in statutes, especially in the contract was a rescission in accordance with German Civil Code (Bürgerliches Gesetzbuch section 323 of the BGB. This legal concept was or BGB). They vary depending on the type criticised as in most cases in which a Rücktritt of contract concerned (sales contract, lease was executed, the contractor had begun to contract and so on) and the reason for the perform the works. As, generally, the owner of intention to end the contract. land becomes the owner of any building that The devices of most importance in the is built on its land (sections 93 and 94 of the legal practice are rescission (Rücktritt, section BGB), the employer was enriched by the works 323 of the BGB) and termination (Kündigung, performed and had to refund their value to the eg, section 314 of the BGB). If a party contractor. It was argued that it would be much rescinds a contract, the contract is deemed easier if the contract remained the legal basis for void from the beginning. The contract is all services performed until the date on which void ex tunc. Any services rendered or the contract ended. deliveries made under the contract by the The legal situation changed in 2002 when a parties up to when rescission becomes right to terminate a ‘contract continuing for a effective have been made without legal basis longer period’ was implemented in section 314 as the initial basis, the contract, is deemed to of the BGB and again on 1 January 2018 by a never have existed. Thus, the parties have to new regulation in section 648a of the BGB, return anything they have received by the according to which a construction contract other party. If this is not possible they have to may be terminated by both parties without refund the appropriate value. notice for good reason. A termination, to the contrary, terminates In most German construction contracts the contract for the future (ex nunc). The that are entered into by the public contract remains valid up to the date when administration or commercial entities, the termination becomes effective. Any services parties agree on the Vergabe und performed or deliveries made under the Vertragsordnung für Bauleistungen – Teil B contract until termination were made due to (VOB/B), a standard form of contract. The the contract and do not have to be refunded VOB/B provides that a construction contract or returned, respectively. may only be ended by means of a termination,
50 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 not by rescission. The following description However, a termination under the VOB/B concentrates on the VOB/B. requires that before termination takes place, a reasonable period is set to warn the other party. The party intending to terminate has to Form of Termination under VOB/B state why it intends to terminate the contract In all cases where the VOB/B provides for the (eg, delay, outstanding payments and defects) possibility to terminate a contract, notice of to give the other party the chance to fulfil its termination has to be given in writing.1 obligations. Under these conditions it is not In most cases, before terminating the admissible to submit further reasons, contract, the terminating party has to set a subsequently. Rather, before a termination reasonable deadline and to declare its can be justified by any further reasons, the intention to terminate the contract on terminating party has to set a new period and expiry of the deadline.2 This should warn repeat its intention to terminate the contract the other party and give it the opportunity in order to fulfil its contractual obligations to fulfil its obligations. under the VOB/B and, subsequently, issue a 5 Generally, under German law when a party new termination notice. terminates a contract it does not have to state the reasons. Thus, it is admissible to submit Notes (for the first time or additionally) reasons to 1 Section 8 (6) and § 9 (2) sentence 1 VOB/B. justify the termination, subsequently, as long 2 Section 8 (3) no 1 and section 9 (2) sentence 2 VOB/B. as the reasons existed prior to termination.3 3 Federal Court of Justice („Bundesgerichtshof“ BGH) It is not necessary that the terminating party June 23, 2005 – VII ZR 197/03, BauR 2005, 1477. 4 Court of Appeal („Oberlandesgericht“ OLG) was aware of these reasons when terminating Schleswig February 9, 2010 – 16 U 16/06. the contract.4 If, however, following 5 OLG Stuttgart July 14, 2011 – 10 U 59/10, BauR 2012, termination a new reason to terminate the 1130; OLG Stuttgart March 3, 2015 – 10 U 62/14, BauR contract occurs, it is not possible to submit 2015, 1500. this reason subsequently. A new termination notice has to be issued instead.
Edward Corbett Common law perspective Corbett & Co International etting termination wrong can be a very Form Construction Gexpensive business. A wrongful termination Lawyers, Teddington will be regarded in most common law jurisdictions Addressing form first, most contracts specify as a repudiation, leading to liability to the how a notice is to be given. FIDIC contracts terminated party in damages. If the Employer normally require notices to be written and to gets it wrong, it will be liable for the Contractor’s identify an address, a means of communication loss of profit and other damages; if the Contractor and to whom copies should be sent. Sometimes, the notice needs to call itself a notice or identify gets it wrong, it will be liable at least for the 1 Employer’s extra completion cost. the clause under which notice is being given. What does getting it wrong mean? Of course, It has been said that as termination is a radical if the termination purports to be in accordance step, particularly where the contractual grounds with the terms of a construction contract are ones that would not amount to repudiation in the general law, then careful compliance termination provision, such as FIDIC’s Clauses 2 15 and 16, the most serious error is to rely on with the contract must be observed. grounds that are held by the dispute Repudiation is a severe or ‘fundamental’ adjudication board (DAB) or arbitrator not to breach of contract, likened to tearing up the contract or showing an intention no longer to exist. For example, the arbitrator may find that 3 there were reasonable excuses for the delay, be bound by it. Under English law, for under Clause 15.2(c). Those errors are outside example, a single non-payment by the the scope of this article. Employer is not regarded as a repudiation. Errors in the substance or form of the Under Clause 16.2, however, such a single non- termination notice are common. The question payment is a ground for termination. Some is whether such errors are fatal to the tribunals have held that if a party wants to avail termination, leading to repudiation or whether themselves of such a right of termination that a valid termination can still be achieved. would not exist in the general law, then strict compliance with form is required.
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However, in the Gibraltar airport case,4 At common law, a terminating party is not Justice Akenhead held that the delivery of the liable for ending the contract when the other notice of termination to the site office rather party was in repudiatory breach, whether or than the specified head office of the contractor not the terminating party knew it at the time – was not an indispensable requirement of either Boston Deep Sea Fishing and Ice Co v Ansell (1888) FIDIC Yellow Book Clause 15.2 or Clause 1.3: 39 ChD 339 (employer successfully defended a • the project manager was based at the claim for wrongful dismissal on the grounds of site office; breaches by the employee not known to the • the site office had been used for receipt and employer at the time of termination). sending of communications in practice; and Facts known but not cited at the time may • the notice was received by Obrascón Huarte also be relied on later – see Reinwood Ltd v L Lain (OHL) on the day it was sent and its Brown & Sons Ltd [2008] EWCA Civ 1090. contents were immediately passed on to the However, each case must be considered on senior directorate. its facts. A party cannot raise new reasons to It therefore appears that there is some leeway justify a termination if: in that courts and arbitrators may take a • the breach could have been put right, if it had common-sense approach to non-compliance been brought to the other party’s attention in where the breach is de minimis or where it has time – Glencore Grain Rotterdam BV v Lebanese had no prejudicial effect on the other party. Organisation for International Commerce (‘Lorico’) [1997] EWCA Civ 1958; and • the party wishing to terminate has waived Substance its right to rely on the breach or is estopped If the purpose of the notice is to give the from doing so (usually when a party knows defaulting party a final opportunity to rectify of a breach but does not act on it). the default on pain of termination, then logic Termination is a risky business. The advice to suggests that the default has to be stated. clients is always: to take great care with both Similarly, if the notice is a ‘show-cause’ notice form and substance. inviting the defaulting party to explain why the contract should not be terminated, the ground Notes 1 FIDIC 2017 contracts define a Notice as: ‘“Notice” for termination would have to be set out. means a written communication identified as a Notice The FIDIC 1999 contracts contain no and issued in accordance with Sub-Clause 1.3 [Notices requirements as to the content of the notice and and Other Communications]’. are ambiguous as to whether the 14-day notice 2 Akenhead J in Obrascon Huarte Lain SA v Attorney General period is intended as a cure period. The 2017 for Gibraltar [2014] EWHC 1028 (TCC): ‘Termination of the parties’ relationship under the terms of such editions resolve this ambiguity and, for most contracts is serious step. There needs to be substantive defaults, the notice period is a final chance to compliance with the contractual provisions to achieve remedy the breach. Clauses 15.2.2 and 16.2.2 an effective contractual termination… Generally, refer to the ‘matter described’: a description of where notice has to be given to effect termination, it the default is therefore required. needs to be in sufficiently clear terms to communicate to the recipient clearly the decision to exercise the What if there is no description or the ground contractual right to terminate.’ later relied on is not mentioned in the notice? 3 Language reflected in FIDIC 1999 Clause 15.2 Where a contract provides a cure period and in the ground ‘abandons the Works or otherwise refers to a ‘matter described’, the failure to plainly demonstrates the intention not to continue specify the default would very likely be fatal to performance of his obligations under the Contract’. 4 Obrascon Huarte Lain v A-G for Gibraltar (2015) BLR 521. the termination. It could be argued that the failure would be insignificant in cases where the default was obvious or beyond repair, such as where a contractor has abandoned the project and demobilised from the country or gone into liquidation. Interesting questions arise where a party learns of a ground for termination only after having terminated on a different basis. This may be due to the discovery of facts or the taking of legal advice. The question is most acute where the ground notified is wrongful but the discovered ground would have justified termination.
52 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 The legal consequences of a wrongful termination
Whether, when, where and how a contractor can try to block a wrongful termination, and the claims available to a contractor who is the victim of a wrongful termination Virginie Civil law perspective Colaiuta LMS Legal, London Termination or order its performance with the possibility of allowing the debtor further time to do so, or award The reform of the French Civil Code, only damages.’ which entered into force on 1 October 2016, introduced a new Article 1224, which If termination is without good cause or done provides that: abruptly, the terminated party may argue ‘Termination results either from the application of a that termination violated the principle of termination clause, or, where the non-performance good faith. is sufficiently serious, from notice by the creditor to If termination does not occur within any of the debtor or from a judicial decision’. the aforementioned options and there are no exceptions that apply, the termination As a result, a contract can be terminated: would itself amount to a breach of the • on the basis of a termination clause with contract. The wrongfully terminated party a unilateral notice referring to the clause would thus have the remedies available to a unless the parties have agreed otherwise; or non-defaulting party. • without a termination clause, but in the event of a very serious breach, through court decision or with unilateral notice Remedies from the creditor. As per Article 1226: The remedies available to a non-defaulting ‘A creditor may, at his own risk, terminate the party are defined in Article 1217 of the French contract by notice. Unless there is urgency, he Civil Code whereby: must previously have put the debtor in default ‘A party towards whom an undertaking has on notice to perform his undertaking within a not been performed or has been performed reasonable time. imperfectly, may: The notice to perform must state expressly that if • refuse to perform or suspend performance of the debtor fails to fulfil his obligation, the creditor his own obligations; will have a right to terminate the contract. • seek enforced performance in kind of Where the non-performance persists, the creditor the undertaking; notifies the debtor of the termination of the contract • request a reduction in price; and the reasons on which it is based. • provoke the termination of the contract; The debtor may at any time bring proceedings • claim reparation of the consequences of to challenge such a termination. The creditor non-performance. must then establish the seriousness of the Sanctions which are not incompatible may be non-performance.’ combined; damages may always be added to any The defaulting party can challenge the of the others.’ termination notice and commence legal As per Article 1223 of the French Civil Code: proceedings against the terminating party ‘Having given notice to perform, a creditor may in order to obtain an order from the court accept an imperfect contractual performance and to compel performance. reduce the price proportionally. If he has not yet In fact, as per Article 1228: paid, the creditor must give notice of his decision ‘A court may, according to the circumstances, to reduce the price as quickly as possible.’ recognise or declare the termination of the contract
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Specific performance Damages As per Article 1221: The non-defaulting party can also seek ‘A creditor of an obligation may, having given damages. As per Article 1229: notice to perform, seek performance in kind ‘Termination puts an end to the contract. unless performance is impossible or if there is Termination takes effect, according to the situation, a manifest disproportion between its cost to the on the conditions provided by any termination debtor and its interest for the creditor.’ clause, at the date of receipt by the debtor of a notice Even though no guidance in the new article given by the creditor, or on the date set by the court is given as to the meaning of ‘manifest or, in its absence, the day on which proceedings disproportion’, French courts are likely to were brought. narrowly construe this condition and order Where the acts of performance exchanged were useful specific performance except in extreme cases. only on the full performance of the contract which Furthermore, as per Article 1222: has been terminated, the parties must restore the ‘Having given notice to perform, a creditor may whole of what they have obtained from each other. also himself, within a reasonable time and at a Where the acts of performance which were exchanged reasonable cost, have an obligation performed or, were useful to both parties from time to time during with the prior authorisation of the court, may have the reciprocal performance of the contract, there something which has been done in breach of an is no place for restitution in respect of the period obligation destroyed. He may claim reimbursement before the last act of performance which was not of sums of money employed for this purpose from reflected in something received in return; in this the debtor. case, termination is termed resiling from the contract. He may also bring proceedings in order to require Restitution takes place under the conditions the debtor to advance a sum necessary for this provided by articles 1352 to 1352-9.’ performance or destruction.’
Common law perspective Shona Frame CMS, Glasgow Can a contractor block a wrongful termination is effectively an order requiring termination? the employer to continue with performance of the contract. Construction contracts consist There are two ways for a Contractor to of a wide variety of rights and obligations on attempt to block a wrongful termination: each party and the courts will not police injunction (interdict in Scotland) or specific compliance with such wide-ranging provisions. performance. These are effectively counterparts Unless it is possible to frame the request for of each other: an injunction is to prevent an an order in sufficiently clear and precise anticipated wrong, in this context, wrongful terms, these are not likely to be successful. termination, while an application for specific One commentator describes them in these performance is to require performance of terms: ‘Orders other than damages… are contractual obligations. These remedies are at drastic, unpredictable and wide-ranging in the discretion of the court that takes account their effects… difficult to supervise and of the whole facts and circumstances. enforceable by imprisonment’,1 which There are significant hurdles for a party summarises well the challenges posed. seeking to obtain these remedies. The court will consider whether there is an adequate Claims available to a contractor subject remedy available in damages and, if so, will be to a wrongful termination reluctant to grant the order. In the context of wrongful termination, it is difficult to mount The principle applied to claims for wrongful an argument that damages will not suffice. termination is that the Contractor is to be put The reason for the court’s reluctance stems in the same position as if the contract had been partly from the fact that criminal sanctions performed. That is subject to the usual factors flow from breach of injunctions or orders for applied to quantifying losses, including showing specific performance and that it is often the causal link between the wrongful termination difficult to identify whether there has been and the loss, the obligation to mitigate and compliance or not. An order preventing a damages being irrecoverable if too remote.
54 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 The question arising is: what would have another project due to its weak financial been the monetary value if the contract had position, which had arisen as a result of ICI’s been performed? actions. It also awarded costs of wasted Typical losses that fall into this category management time, professional advice in would include the value of work done to respect of insolvency matters, additional banking termination, loss of profit for remaining work costs and a value added tax loan necessary for and lost contribution to head office overheads. cashflow reasons. These heads of loss go further There can be difficulties in proving losses. than would traditionally be thought to apply in a For example, the contractor will be required wrongful termination scenario. to show that the contract would have been These cases highlight the need to look at profitable and how much profit would have the whole facts and circumstances of the been earned on the balance of work. If the contract in assessing damages and that these pricing is weighted to front-load profitable can lead to unexpected outcomes in terms of activities, there may be little profit on later assessment of losses recoverable. activities. Similarly, if the contractor has been working uneconomically (eg, piecemeal, Notes disrupted material supply), often a reason in 1 Hudson’s Building and Engineering Contracts para itself for the termination being on the agenda, 7-064. profit will be impacted. Other factors would 2 [1971] 1 QB 164. include any overpayment to the contractor 3 (1998) 14 ConstLJ 120. pre-termination, such as through an 4 [2018] EWHC 1577 (TCC). agreement for advance payments or simply erroneously over-valuing work. Other factors can also be relevant. In The Mihalis Angelos 2 charterers of a ship terminated the contract on grounds of force majeure. That was considered invalid and the shipowners accepted it as a repudiation of the contract by the charterer. However, the owners were unable to comply with a ‘ready to load’ provision, which allowed the charterer to terminate if the vessel was not ready to be loaded with its cargo by a certain date. The court held that the owners were only entitled to be put in the position of having their ship on a charter which, as soon as it arrived, could legally and would actually (on the evidence presented) have been cancelled. They were therefore only entitled to nominal damages for what was, in effect, a worthless charterparty. This article was collaboratively written by: Jane That rationale was followed in Engineering Davies Evans of 3 Verulam Buildings, London, who Construction Pte Ltd v Att Gen of Singapore (No 3) 3 can be contacted at [email protected]; Bruce Reynolds where the contractor was only entitled to of Singleton Urquhart Reynolds Vogel, Toronto, who nominal damages where there was a wrongful can be contacted at [email protected]; termination by the employer due to a contractual Dimitris Kourkoumelis of Kourkoumelis&Partners, notice being served too early but where Athens, who can be contacted at termination could have been effected validly. [email protected]; Ian de Vaz of WongPartnership, Singapore, who can be contacted In contrast, a surprisingly wide categorisation at [email protected]; of losses arising was allowed in Imperial Chemical Thomas Stickler of Redeker Sellner Dahs, Leipzig, Industries Limited v Merit Merrell Technology Limited. who can be contacted at [email protected]; 4 Imperial Chemical Industries (ICI) had Edward Corbett of Corbett & Co International pursued a strategy of withholding payments Construction Lawyers, Teddington, who can be from Merit Merrell Technology (MMT) and contacted at [email protected]; seeking to terminate. In addition to loss of profit Virginie Colaiuta, Partner at LMS Legal, London, who on the remaining work under the contract, the can be contacted at [email protected]; court awarded £1.3m in respect of a reduced and Shona Frame of CMS, Glasgow, who can be final account settlement accepted by MMT on contacted at [email protected].
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Evelien Legal aspects of Building Bruggeman Dutch Institute for Construction Law, Information Modelling (BIM) The Hague in the Netherlands: the procurement of a work with a BIM component – Part 2
art 1 of this article was published in the In Part 2, the author will address the possible P June 2018 edition of Construction Law use of selection criteria for the BIM International. It addressed what Building component, the award criteria for BIM and in Information Modelling (BIM) is and how particular the use of a BIM Execution Plan it works, the changes BIM instigates in the (BEP), which describes how the demands of collaboration of all parties involved in the the EIR will be met. building process and the legal implications of these organisational changes. It also briefly considered the legal framework Selection criteria for public procurement in the Netherlands, The criteria for qualitative selection encompass identifying the requirements of using BIM, the candidate’s personal situation, whereas and their formulation in a so-called Employer’s the award criteria comprise the bid itself. Information Requirement (EIR). The selection criteria determine whether
56 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 the candidate is economically, financially and It is likely that this ground for exclusion will technically able to fulfil the requirements of not be invoked frequently; similarly, the the assignment and to show the absence of Proportionality Guide states that it should be grounds for exclusion.1 Therefore a selection used sparingly.9 Therefore, as this ground for is made by considering both the grounds for exclusion is optional it can only be invoked if exclusion and the suitability requirements. it is applicable to the bidder in order to If the bidder does not fulfil these comply with the principle of equality.10 requirements, it must be excluded from the Although it is not yet the case in the tender procedure. Suitability requirements Netherlands, past performance regarding a outline the standards or quality the contracting BIM component of the work can also be used party demands from the bidder (including its as a ground for exclusion during procurement. technical capabilities and its economic and During the contracting period, contractors financial standing). may demonstrate significant or persistent This section provides an overview of several deficiencies in the performance of their BIM possible criteria for selecting a supplier of obligations; several shortcomings or forms of the BIM component. A potentially relevant non-performance are possible, in particular, aspect worth considering in the procurement late or incomplete, intermediate or final of work containing a BIM component is past deliveries of BIM data or BIM models. To performance,2 which will be analysed below. comply with the demands of Article 2.87 sub Other selection criteria can be found in the 1(g) Aw, these shortcomings must include suitability requirements. The suitability of a significant or persistent deficiencies in the bidder can be demonstrated through execution of any substantive requirement that reference works, by indicating whether the led to the early termination of the prior bidder meets the personnel or technical contract, damages or other comparable requirements and by (past) performance sanctions. In the case of a minor deficiency in
Credit: Panchenko Vladimir Credit: indicators. These aspects are discussed under past performance, the bidder’s exclusion could ‘Suitability requirements’. be considered disproportionate.11 To determine whether or not exclusion is appropriate, the nature, substance and severity Past performance of the deficiency in the prior performance, In accordance with applicable European especially related to the BIM component of the legislation, the Public Procurement Act current procurement and the prior non- 12 states several mandatory and optional performance, must be considered. In the grounds for exclusion.3 In 2016, as part of the event that the use of BIM increases and the implementation of Directive 2014/24/EU,4 necessity for correct and complete delivery of past performance was introduced as a ground BIM models and BIM data becomes more of exclusion in Article 2.87 sub 1(g) Aw.5 important, contracting authorities will demand Past performance is an optional ground for (contractually and in practice) fulfilment of exclusion if the so-called economic operator, the BIM component, so past performance the potential bidder, has shown significant or regarding BIM will be used as grounds for persistent deficiencies in the execution of any exclusion and as a successful tool in selecting a substantive requirements under a prior suitable BIM partner. contract of similar nature with the same contracting authority. The ground for Suitability requirements exclusion can be implemented when all requirements of the article are met.6 These According to Article 2.90 Aw,13 a contracting requirements are met if a court determines authority can demand suitability requirements the breach of a contract or non-performance. from its bidders. In European procurement An earlier extrajudicial dissolution also cases, these suitability requirements can provides grounds for exclusion.7 Furthermore, involve the economic and financial standing of the notion of proportionality is relevant, that the bidder, its level of technical competence or is, a prior minor deficiency will not justify an professional aptitude.14 Article 2.90 sub 2 Aw exclusion8 and the shortcoming must have contains a limitative enumeration of suitability been in the bidder’s control. According to requirements, so that contracting authorities Article 2.87 sub 2(d) Aw, only deficiencies can only demand suitability requirements dating a maximum of three years prior to the on the three subjects listed therein. As relevant date may be considered. with the entire procurement process, the
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suitability requirements15 are controlled by the principles of the Procurement Act.16 Awarding authorities can also demand educational The requirements must be proportionate, or professional qualifications from the bidder or objective and unambiguous.17 Of the three suitability requirements mentioned in Article its management personnel, samples or product 2.90 sub 2(b) Aw, the one addressing the level of technical competence is of particular certification,descriptions of technical equipment importance to the procurement of a project and systems of quality assurance or quality control. with a BIM component. These requirements encompass the personnel or technical resources and the experience the bidder has management personnel,21 samples or product access to, as specified in Article 2.92a Aw. certification,22 descriptions of technical This level of competence can be measured equipment and systems of quality assurance or in several ways, for example, the required quality control.23 In general, it must be noted experience can be measured or demonstrated that these demands must relate to the subject by means of reference works, as mentioned of the procurement24 and must not create an in Article 2.92a sub 2 Aw, by giving insight artificial restriction of competition.25 into the level of education or experience of BIM certification or educational the bidder’s personnel, or the availability of qualifications can also play a role in the certification or other standards and by using suitability requirements. They can cover performance indicators.18 technical skills or qualifications, but more likely pertain to the role and qualifications of 26 Reference works a BIM manager or BIM coordinator. In this Submission of reference works proves that the case, the emphasis will be on management bidder has sufficient experience to complete experience and other similar qualifications to the assignment. The required reference(s) ensure the bidder has the capacity to must concern essential aspects or the core coordinate the complicated BIM process and competence needed for the work.19 In order to the work of those involved. Requiring comply with the principle of proportionality, experience with certain software programs or the demanded competence must be technical open standards is only permissible essential for the project or the contracting providing it does not favour certain brands, 27 authority. If BIM is essential for the asset manufacturers or producers. Because the management of the contracting authority, Dutch Government demands the use of open demanding reference work regarding the standards or the use of their own free-of- BIM component could be proportionate. This charge systems, these types of infringements depends on circumstances such as the level of procurement law are unlikely to occur. of experience and type of BIM experience demanded by the work. Regulation 3.5G Performance indicators as a systematic of the Proportionality Guide deems one method to monitor performance reference work per core competence (eg, The use of (past) performance indicators a certain type of BIM experience) to be (also called ‘performance measurement’ or proportionate. The estimated value of the ‘past performance information’) is a method reference must be between zero per cent and that aims objectively to obtain insight into 60 per cent of the assignment, according to the quality of the work, the work process the Proportionality Guide.20 It is obvious that and the collaboration between contractor these percentages should apply to the value of and constructor.28 The Dutch National Road the BIM component and not to the value of and Waterways Authority (Rijkswaterstaat) is the entire project (again complying with the one of the awarding authorities measuring principle of proportionality). performance by using performance indicators during contracting periods and 29 Personnel and technical resources: using its results in the procurement phase. certification and education It uses questionnaires to gain insight into Besides reference work, there are other how both contractor and constructor means for the bidders to demonstrate their live up to their contractual obligations. level of competence. Awarding authorities A transparent, clear and standardised can also demand educational or professional measuring process is applied to guarantee qualifications from the bidder or its that a correct and similar working method
58 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 is applied.30 After the assessment, the Award criteria: the BEP contractor is graded (eg, between one and After assessing the demands and requirements ten) for the various competencies or subjects 35 with specific emphasis on attitude and set out in the tender documents, the behaviour expressed during the evaluation contracting authority must award the 31 tender based on the most economically period. The questionnaire addresses the 36 following competencies: advantageous tender. The award criteria are clearly stated at the announcement of • working methodology; 37 • expertise or skill and quality; the tender and further specified in one of • cooperation, communication and the (sub) award criteria presented in Article organisation; 2.114 sub 2 Aw. The most economically • health and safety; and advantageous tender is assessed based on • quality management.32 the best price−quality ratio or either price or In addition, Rijkswaterstaat assesses the cost-effectiveness. If a best price−quality ratio documentation of the work performed, is used as sub-award criterion, Article 2.115 for instance, the recording of alterations sub 2 Aw further specifies this criterion. The in the area33 and the delivery of a case file. sub-award criterion expressed in this article This part of the performance indicators is a more detailed implementation of Article is especially important for Rijkswaterstaat 67 of Directive 2014/24/EU. The rating or evaluation system is formed because it is vital for it to have access to 38 the most asset information. It is on this by the specifications and the award criteria. aspect of the performance indicators that The contracting authority has a broad range BIM qualities and the bidder’s experience of discretionary power to formulate the criteria and is only limited by the principles can be monitored, because BIM data and 39 BIM models are digital counterparts of the of procurement law. traditional (paper) asset documentation. In this section the use of an Execution The use of performance indicators in Plan as part of the procurement process, European procurement cases is, in specifically the award criteria, is discussed. principle, non-compatible with the An Execution Plan is an excellent tool to principles of procurement law because measure in advance how a bidder will assess new entrants to the market are unable to the BIM process. To put it simply, an deliver previously obtained performance Execution Plan as part of the award process indicator results. Even the assignment of a is essential when selecting a compatible fictional or neutral performance grade partner for complex BIM works and where would not be objective. However, in cases of BIM data is essential for the systems of asset limited tendering performance, indicators management used by the procurer. At can still be used in the procurement phase, present, BIM is not (yet) an essential part of although naturally they would have to be the systems or asset management’s tools established objectively.34 used by governmental bodies. Therefore, At this stage, Rijkswaterstaat or other Execution Plans are not used as part of the contracting authorities do not use award phase yet. However, it is expected performance indicators regarding the BIM that with the increasing use of BIM and the component and BIM qualities of a supplier growing importance of BIM as a tool for or contractor. However, it is very likely that asset management, BIM will become an with the increasing use and importance of essential part of a project and therefore the BIM and the increasing need for correct use of BEP as part of the award phase will and complete BIM data, this will change in grow simultaneously. the near future. This paper first analyses the situation in the United Kingdom regarding the use of a BEP and subsequently examines the Dutch model Execution Plan and its possible use in the award phase. The assessment of an Execution Plan as a part of the award criteria The most economically advantageous tender is is discussed in the third section, before some conclusions are drawn regarding BIM and its assessed based on the best price−quality ratio or role in the award phase. either price or cost-effectiveness.
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The UK BEP between a pre-contractual and a post- contractual BEP. The pre-contractual BEP In the UK, building with BIM level 2 is 40 contains the major milestones for mandatory for all public works. As a information delivery, whereas the post- result, the EIR is an essential part of the contractual BEP is more detailed and consists procurement process of a project involving a of a Master Information and Delivery Plan BIM component. The UK model EIR contains (MIDP), which has several smaller Task the BIM requirements and has a section on Information Delivery Plans, which fill in the the purpose of the BIM model. However, it milestones and data drops.44 The MIDP is not only functions as a format for the digital developed by and adjusted in collaboration demands of the tender specifications, it is also with all the stakeholders. the basis for a BEP as part of the award phase 41 Both the pre and post-contractual BEP are in procurement. Ideally, an Execution Plan governed by a so-called Publicly Available describes the procedures, timetables and steps Standard (PAS), which manages a large part necessary to meet the demands in the EIR. of the BIM process and is developed in Although we are presented with evidence that accordance with the CIC BIM protocol, not all parties use the models set out in the EIR called PAS 1192-2:2013.45 This standard model, the Execution Plan and the timetables 42 contains specifications for information they establish, the connection between EIR management for BIM processes46 and maps and the Execution Plan is more detailed than 43 out the BIM roles and responsibilities in the Netherlands. necessary for working on BIM level 2.47 It In the UK system, the Construction contains definitions, scheduling Industry Council (CIC) distinguishes information, coordination, clash detections, Credit: Profit_Image/Shutterstock Credit:
60 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 cooperation processes and the tasks of the schedules in Chapter 4, Chapter 5 contains BIM information manager. schedules and workflow overviews regarding the transfer of data of the BIM model. The Dutch model Execution Plan is very The Dutch national BEP basic compared to the English version; In the Netherlands, a national BEP is developed however, bidders can give a more elaborate by the BIM Loket.48 Its content and layout are description of their work process to refine based on the UK BEP described in the previous it further. paragraph. However, the Dutch Execution Chapter 7 of the model Execution Plan Plan is primarily designed to be used as a tool deals with very technical modelling or template to record the working agreements arrangements, such as naming of the files, between the BIM partners, preferably in an building levels, the so-called zero point and so early stage of the process.49 Nevertheless, it is on. If a contracting authority has set any also possible to use it as a working plan as part technical requirements comparable to those of the award criteria, so it is designed with this in Chapter 7, it will usually be handled in its in mind. Although this application is still quite EIR. Ideally, those requirements are simply rare, it can provide insight into the methods copied into Chapter 7, according to the used and the roles and responsibilities of demands in the EIR. Considering these different BIM actors, which can be convenient requirements in the award phase (by means of in the award phase.50 the Execution Plan) is not useful because they The Dutch model Execution Plan is divided are necessary to complying with the demands. into chapters of which Chapters 3, 4, 5 and 6 A bid that doesn’t meet the requirements will regarding the BIM process are especially be put aside as invalid. useful for the award criteria. Chapter 3 refers Another area that could be addressed in an to the purpose of a BIM (3.1), its applications Execution Plan is the use of certified processes (3.2) and then analyses it (3.3). In particular, regarding process management or quality clarification of the purpose and application of assessment. These give an indication of the the BIM model can provide a better capability of the organisation or its personnel understanding of the functionalities, content to work in a complicated BIM process and and quality of the BIM model or data. Chapter their ability to manage this process. The 3 can be used to clarify which demands of the quality of the process can also be determined contracting authority have been met (ideally through the use of certified personnel or by all of them) and which ‘wishes’ will be fulfilled. demonstrating the education level and ‘Wishes’ are extra requirements set out by the experience of the personnel. contracting authority that enable the bidder to earn extra points in the bidding process. The assessment of the Execution Plan as Paragraph 3.2 sets out several functions or part of the award criteria applications that allow the contracting authority to obtain information about the In projects where the BIM aspect is relevant to (future) BIM model. In paragraph 3.3 the the contracting authority, the award criterion bidder can set out which data analysis it will for the most ‘economically advantageous’ carry out to achieve certain goals or to obtain tender must be used. Furthermore, in terms information from the model about the of sub-award criteria, the best price−quality functionalities of the actual building. For ratio51 or cost-effectiveness concerning lifecycle example, it is possible to analyse the design of costs52 are the most obvious to use. When the the building to ascertain whether it complies price−quality ratio is a sub-award criterion, with the programme of requirements or further assessment of the bid is needed by demands regarding the energy efficiency of using more detailed (sub) sub-criteria, stated in the project. Chapters 4 and 5 are designed to Article 2.115 subs 1 and 2 Aw. The most evident provide information about the schedule, criteria for BIM mentioned in this article are: workflow and process schedules of the design the quality of the bid and its technical merit;53 and construction process. In line with the the functional characteristics;54 the suitability of the BIM model, its users and its organisation;55 ‘Wishes’ are extra requirements set out by the and the quality assurance embedded in the BIM process, for example, by explaining the contracting authority that enable the bidder to processes or by clarifying the personnel’s capability or experience.56 Credit: Profit_Image/Shutterstock Credit: earn extra points in the bidding process.
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The methods of assessing the bid and more more structured way is at an early stage. specifically the methods of assessing the Rijkswaterstaat has a tested strategy and has Execution Plan and its contents, must be in developed an entire system to use BIM for accordance with procurement law. Moreover, its asset management. To date it has used the assessment methodology must obey the its EIR in 27 projects so BIM was therefore principles of equality and transparency. part of the procurement process. Only two Whether there is an infringement of these of these projects were delivered in 2017; the principles depends on the application of the others will follow over the next few years. assessment methodology.57 The Gelderland province has used BIM in its The sub-award criteria can be represented procurement strategy in one project (Traverse with weighting factors by using a matrix. The Dieren) and is now expanding the number assessment methodology and weighting of projects that include a BIM component. system must be designed as objectively as The Rijksvastgoedbedrijf has five to ten larger possible.58 However, generally it can be said DBFM projects, which have been delivered that the use of a system that entails a using its EIR or BIM standard, but it does not methodology that is not entirely objectively use its own central database or a library and measurable cannot be regarded as non- is on the brink of reviewing its BIM policies compliant with the principles of equality and to make them more consistent with its asset transparency.59 In other words, whether or management systems. not a methodology is sufficient to work both Overall, it can be concluded that the as a tool for awarding and selecting the best requirements presented in several of the EIRs bid and complying with procurement law used in the Netherlands are mostly technical. depends on the circumstances. They focus on output and technical specifications and not on process management. This is understandable because Conclusions regarding the Execution Plan the procurement of projects with a BIM as a part of the award phase component is done by large governmental While selection criteria are intended for the bodies focusing on BIM as a tool for asset selection of a contractor capable of doing the management and maintenance. They do not job at hand, the award criteria are intended need BIM for collaboration, but need BIM to distinguish the submitted bids with regard data for their asset management. to essential features of the project. In the Rijkswaterstaat and the Gelderland province, construction industry, because BIM is in its are the only governmental bodies that have to developing stages, it is not (yet) an essential date developed an EIR with requirements suited part of a project. At this stage, bidders and for and aimed at their own systems. their bids are not often selected or awarded The EIR is currently only used in the on the basis of distinguishing themselves in procurement process to establish demands for BIM, simply because it is not yet an essential the BIM component of the project. Criteria for part of the assignment.60 With the increasing selection, suitability requirements or award use and importance of BIM this will probably criteria are not used in relation to BIM. change in the future. If BIM becomes essential Although not yet in use in the Netherlands, for the asset management of, in particular, selection criteria are an excellent tool for governmental bodies, the significance of BIM choosing a bidder who is not only able to in the procurement phase, and especially as construct the building, but also able to deliver part of the award phase, will grow.61 the required BIM data or model. Suitability requirements could be particularly useful for the submission of reference work regarding Conclusions BIM (as long as BIM is one of the core competencies of the project). Furthermore, In the majority of cases in the Netherlands, the use of technical criteria or certification of BIM is still primarily used as a design tool or personnel, especially focused on the level of as a tool to support the construction process. education or experience with the management The use of BIM as a tool for maintenance and of complex BIM processes, could be useful in asset management is widely acknowledged, but the future. But most importantly, BIM as part the procurement of BIM for maintenance or of the performance indicators system and asset management is still not widely developed. consequently as part of the selection criteria Public procurement of projects with a BIM seems very promising. It encourages component by governmental bodies in a
62 CONSTRUCTION LAW INTERNATIONAL Volume 13 Issue 4 January 2019 contractors to perform in accordance with the a prior public contract, a prior contract with a procurers’ wishes during the contracting phase contracting entity or a prior concession contract which led to early termination of that prior contract, and is a means for bidders to distinguish damages or other comparable sanctions.’ themselves during the procurement phase of a 3 Art 2.86 Aw up to and including art 2.88 Aw, new contract. Moreover, it is a reliable tool for implementation of Art 57 of Directive 2014/24/EU. selection and an indicator for future 4 Article 57(3)(g) of Directive 2014/24/EU. performance for contracting authorities. 5 In the Dutch Procurement Act the ground for exclusion of Art 57(4)(g) of Directive 2014/24/ Although the Dutch Execution Plan model EU is (using the exact same words) implemented is suitable for use in the award phase and as in Art 2.87 sub 1(g) Aw. Translated, Art 2.87 part of the award criteria, it is also not yet used sub 1(g) Aw: ‘1. The contracting authority may in procurements. The Netherlands does not exclude a bidder or candidate from participation distinguish between pre- and post-BEPs and is in a procurement procedure if one of the following conditions is fulfilled:… g. the bidder or candidate therefore not as detailed as the UK version. has shown significant or persistent deficiencies in the However, that does not appear to be the performance of any substantive requirement under reason it is not yet used as part of the award a prior contract or contracts of a similar nature with criteria. At present the BEP does not seem the same contracting authority which has led to early very useful because selection and awarding termination, compensation or similar penalties.’ 6 An earlier version of the Directive used a different take place during essential parts of a formulation. The proposal dated 20 December 2011, construction project. With the increasing use COM(2011) 896 final continued under sub d of Art 55 and growing importance of BIM this will Aw (which used the same wording as the final Art 57(4) probably change in the future. If BIM becomes (g) of Directive 2014/24/EU) as follows: ‘In order to essential for asset management, especially of apply the ground for exclusion referred to in point (d) of the first subparagraph, contracting authorities shall governmental bodies, the significance of BIM provide a method for the assessment of contractual in the procurement phase will grow to become performance that is based on objective and measurable a tool to distinguish the best BIM bid from the criteria and applied in a systematic, consistent and others. In this stage of its development, it transparent way. Any performance assessment shall be might be best to use BIM requirements in the communicated to the contractor in question, which shall be given the opportunity to object to the findings EIR. To meet the requirements of the tender and to obtain judicial protection.’ The formulation of (and later the project) and to remain a valid this part of the proposal describes a system comparable bid in the procurement process the BIM to the Dutch use of performance indicators. Those requirements must be met. As a result, performance indicators in the Netherlands are (often) awarding authorities will receive bids that not used as a ground for exclusion, but as part of the suitability requirements. This subject will be discussed in comply with their demands. ‘Suitability requirements’. It is expected that soon the use of BIM 7 This can be deduced from the words used in Art demands in public procurement will change 2.87 sub 1(g) Aw, which, translated, but similar to the significantly. The first challenging steps have wording in the Directive (Art 57(4)(g) of Directive been taken by important governmental bodies 2014/24/EU) states that the past performance must have led to early termination of that prior contract, and agencies (which are large contractors in damages or other comparable sanctions. See n 1 above, infrastructure projects) so others will p 236 states that this ground for exclusion applies ‘in undoubtedly follow. any case’ to judicial termination. On this subject see Sue Arrowsmith, The Law of Public and Utilities Procurement (Sweet & Maxwell 2014), no 12-105, p 1269. Notes 8 Past performance is a facultative ground for * Evelien Bruggeman is conducting a three-year exclusion. A facultative ground for exclusion has to research project on the influence of new construction be proportionate in relation to the subject of the methods on (construction) contract law. One of procurement. See Art 2.88 sub (b) Aw and reg 3.5A of the aspects of this project is research into the legal the Proportionality Guide. aspects of the use of BIM in the Netherlands. Her 9 Proportionality Guide, p 38. research focuses on the contractual aspects, as well as 10 See n 1 above, p 59. the implications for public procurement. This article 11 Art 2.88 sub b Aw and reg 3.5A of the is an adapted text of a lecture given at the Annual Proportionality Guide. Conference of the European Society for Construction 12 In order to comply with the principle of proportionality Law in November 2017 in Fribourg, Switzerland. the bidder and its past performance must be judged 1 Maurice JJM Essers and Claire AM Lombert, individually and specifically: CJEU, 13 December 2012, Aanbestedingsrecht voor overheden, 2017, 229. Case C-465/11 (Forposta). EU law does not oppose a 2 As described in Art 2.87 sub 1(g) Aw. This article proportionality test regarding the existence of a ground implements Art 57 sub 4(g) of Directive 2014/24/ for exclusion, but in order to comply with EU law the EU: ‘where the economic operator has shown use of this proportionality test as part of the grounds significant or persistent deficiencies in the for exclusion must be stated beforehand in the tender performance of a substantive requirement under documentation, CJEU, 14 December 2016, Case C-171/15 (Valys).
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13 The implementation of Art 58(1) of Directive Procurement and Contracts, paper presented to the Society 2014/24/EU. of Construction Law at a meeting in London on 14 Art 2.90 sub 2 Aw. On technical ability see Sue 1 December 2015, pp 8−9 and see n41 above, p 19. Arrowsmith, The Law of Public and Utilities Procurement 45 Pre-contract BIM Execution Plan, note 49, s5. (Sweet & Maxwell 2014), p 1,205. 46 The PAS document is developed in accordance with 15 Art 2.90 sub 4 Aw. BS 1192:2007, an existing guideline for ‘collaborative 16 In the same way: Art 2.90 sub 5 Aw and Art 58(3) of production of architectural, engineering and Directive 2014/24/EU. construction information’ and it has great similarities 17 See n 1 above, pp 243−245. with PAS 1192-3 about use and maintenance of the 18 Very elaborate on the ways in which technical or Asset Information Model. professional ability can be measured; Sue Arrowsmith, 47 PAS 1192-2:2013, p 1. The Law of Public and Utilities Procurement (Sweet & 48 There also is a National BIM Protocol and a National Maxwell 2014), pp 1,183−1,234. BIM Execution Plan (BIM Uitvoeringsplan). 19 Regulation 3.5F of the Proportionality Guide 2016. 49 Both the British and the Dutch distinguish between 20 Regulation 3.5G of the Proportionality Guide 2016. the status of a BIM Protocol and a BIM Execution Plan. 21 Art 2.93 sub 1(g) Aw. The Protocol is identified as a contractual document, 22 Art 2.93 sub 1(l) Aw. whereas the Execution Plan is not and only serves 23 Art 2.93 sub 1(f) Aw. as a document containing working arrangements. 24 ECJ EG 29 April 2004, Case C-496/99 Such a distinction is, however, hard to follow, whereas ECLi:EU:C:2004:236 (Succhi di frutta) and Art 1.10 Aw. both documents are part of the legal relationship 25 See n1 above, p 58 on Art 2.76 sub 3 Aw. of the BIM partners. Similar: David Mosey, Chris 26 Art 2.93 Aw contains multiple methods with which Howard and Darya Bahram, Enabling Building a bidder can demonstrate its level of technical Information Modelling through Procurement and Contracts, competence. paper presented to the Society of Construction Law 27 See n 1 above, p 225. meeting in London on 1 December 2015, p 12. 28 MAB Chao-Duivis, ‘Het beoordelen van aannemers op 50 An example of a case in which an Execution Plan, basis van past performance: een eerste verkenning’, BR the use of a BIM Protocol and the implementation 2006/216, par 1 and 2. At the moment hard data on of BIM in the design and building process was part the subject is not available: Jeroen van de Rijt, Michael of the procurement and the award criteria can be Hompes and Sicco Santema, ‘The Dutch Construction found in Court of Gelderland 20 January 2014, industry: An Overview and Its Use of Performance ECLI:NL:RBGEL:2014:2898. Information’ (2010) 2(1) Journal for the Advancement of 51 Art 2.114 sub 1(a) Aw. Performance Information Value 33. 52 Art 2.114 sub 1(b) Aw. 29 See www.rijkswaterstaat.nl/zakelijk/zakendoen- 53 Art 2.115 sub 2(a) Aw. met-rijkswaterstaat/werkwijzen/werkwijze-in-gww/ 54 Art 2.115 sub 2(b) Aw. aanbesteden-en-contracteren/prestatiemeten/ 55 Art 2.115 sub 2(d) Aw. index.aspx accessed 22 October 2018. 56 Art 2.115 sub 2(g) Aw. Also Sue Arrowsmith, The Law of 30 Rijkswaterstaat, ‘Handreiking Prestatiemeten Public and Utilities Procurement (Sweet & Maxwell 2014), Rijkswaterstaat’, version 1.2, 1 January 2013. 749−755. 31 See n 29 above. 57 Dutch Supreme Court, 9 May 2014, 32 See www.pianoo.nl and www.rijkswaterstaat.nl ECLI:NL:HR:2014:1078. accessed 22 October 2018. 58 T Chen, ‘Beoordeling van kwaliteit: wat is een 33 So-called ‘areaalveranderingen’ in Dutch. zo objectief mogelijk systeem?’, Tijdschrift voor 34 Rijkswaterstaat only uses this method for the restricted Aanbestedingsrecht, 2015 (6)/93. tenders procedures but not in combination with a 59 ‘Over de beoordeling van de kwaliteit van een competitive dialogue. See n29 above. aanbieding en de complexiteit daarvan’: see 35 Art 2.113 Aw. n58 above, also: T Chen and F van Nouhuys, 36 Art 2.114 lid 1 en lid 2 Aw, which is an implementation ‘Gunningsmethodieken, ideeën voor nieuwe of Art 67(1) and (2) of the Directive. aanbestedingswetgeving’, Tijdschrift voor 37 Art 67(1) and (2) of the Directive on Contract Aanbestedingsrecht 2008, pp 319–327. Award Criteria. 60 An exception can be found in Court of Gelderland 38 See n1 above. 20 January 2014, ECLI:NL:RBGEL:2014:2898. 39 As an example: Court of Zeeland-West-Brabant, location 61 An example of a case in which the delivery of an Breda 27 May 2014, ECLI:NL:RBZWB:2014:3579. As-built BIM model suitable for maintenance and 40 For more on the UK Government’s BIM Programme asset-management was considered as an alternative see ‘Handbook for the introduction of Building bid can be found in Court of Zeeland-West-Brabant Information Modelling by the European Public Sector’, 14 April 2016, ECLI:NL:RBZWB:2016:2285. EU BIM Task Group, 2017, pp 37−38, 47−48. 41 David Mosey, Chris Howard and Darya Bahram, Enabling BIM through Procurement and Contracts, a research report by the Centre of Construction Law & Dispute Resolution, King’s College London, 2016, pp 24−25. 42 Ibid, p 20. Evelien Bruggeman is a senior research fellow for 43 An example is given in ‘Handbook for the introduction the Dutch Institute for Construction Law (Instituut of Building information Modelling by the European Public Sector’, EU BIM Task Group, 2017, p 65. voor Bouwrecht) in The Hague. She can be contacted 44 David Mosey, Chris Howard and Darya Bahram, at [email protected]. Enabling Building Information Modelling through
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