Presentation Teush

Consulting Engineering Industry and Application of FIDIC Forms of Contract :

The Ukrainian Dimension at a GlanceSvitlana Teush, PhD

Senior AssociateArzinger Law Office, Kyiv , Ukraine

FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015

Consulting Engineering Industry: Current Reality and Trends

2

A handful of full-fledged consulting engineers capable of meeting FIDIC standards

Trust, qualification, expertise and awareness issues

Nascent institutionalization and self-governance of the engineering industry

Targeted alignment with the international standards and practices

Reforms in transition - extreme agility of performers in demand: New design and construction standards, energy efficiency and sustainability agenda, modifications in service provision and cooperation patterns, etc.

Peculiarities of the local association of consulting engineers


Use of FIDIC forms of contract in Ukraine

3

Limited and cautious use of FIDIC forms of contract, primarily, in infrastructural projects

International institutional lenders (MDB) act as the main driver

Red Book and Yellow Book are most commonly used Lack of clear guidance, explanatory notes, case law/

established court precedents Lack of established and demanding operational environment

(a handuful of infrastructural projects, PPPs underused)

Practical difficulties at the implementation stage and during audits by controlling authorities, in courts: literacy campaign in need

Engineer’s role and functions are not properly understood FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015

Use of FIDIC forms of contract in Ukraine. – Cntd.

4

Mandatory rules vs. FIDIC conditions of contract (where divergent). Civil law issues

Special legislative limitations re projects with public authorities/public finance involved: e.g., standards of supporting documents, special approval procedures, restrictions on contract amendments, etc.

Lack of the ready and tested adjustment techniques and of assessment of the affordable degree of adjustments

Language barrier

Comprehension and terminology issues

Mentality and custom

Contract administration FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015

Risks Allocation and Management

5

No ramified risk allocation patterns established in legal concept

“Dressing” solutions suggested or even imposed for certain generalized categories of claims / under categories of cases, which may be invoked where a contract is silent (e.g., a material change in circumstances, force majeure, etc.)

Case-by-case approach to pre-assess a claim or procedure in light of how applicable rules and conditions of contract compare

Intermittent “Suspend-terminate” solutions suggested by law: how does it compare with contract procedures?


Risks Allocation and Management. – Cntd.

6

EXAMPLES:

Claims regarding the time of works’ performance

§ If the Contractor fails to commence works in a timely manner or performs it so slowly that it becomes clear that it cannot be performed in a timely manner, the Employer has the right to terminate the contract and to claim damages. If, during performance of work, it becomes obvious that the work will not be properly performed, the Employer has the right to appoint the defects remedial term and, in case of non-compliance by the Contractor, to terminate the contract and claim damages or appoint a third party to perform works at the Contractor’s costs.

(Art. 849 of Civil Code of Ukraine)



7

Claims regarding the Employer’s instructions or supply of materials by the Employer

§ If the use of improper or faulty materials, or compliance with the Employer’s instructions presents danger to life or health, or entails a breach of ecological, sanitary rules, security or other requirements , the Contractor shall be obliged to terminate the contract, while retaining the entitlement to claim damages.

(Art. 848 of the Civil Code of Ukraine)



8

Claims regarding payment of additional works caused by design amendment § The Employer has the right to amend design documentation before commencement or during performance of works, provided that additional works caused by such amendments will not exceed 10% of the cost estimate and will not change the nature of works. Should the cost of such additional works exceed 10% of the cost estimate, such amendments are subject to agreement with the Contractor. The Contractor shall have the right to terminate the contract and claim damages.

(Art. 878 of the Civil Code of Ukraine)


Construction Disputes Resolution: Current Approaches and Trends

9

Litigation in national courts prevails over international arbitration. Yet: growing preference for arbitration in international commercial disputes (ICC, LCIA, VIAC etc.)

• Institutional arbitration in Ukraine:– International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry

– Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry

Complex and protracted proceedings

Judges/arbitrators lack expert knowledge and relevant practice

No institutions specialized in handling construction disputes

Technical expert examination is often an issue

Lack of relevant “case-law” / well-established precedents


Construction Disputes Resolution: Current Approaches and Trends. – Cntd.

10

Mediation:

Rudimentary stage of development

Not prohibited, yet not commonly used

No special legislation on mediation

Enforceability issue

Draft bills on mediation registered in Parliament in 2013

Mediation promotion and advocacy (Ukrainian Mediation Center)

Investment treaty arbitration (ICSID, BIT ) can be invoked in a dispute against the State /state authorities:

e.g., on grounds of expropriation or violation of FIT (fair and equitable treatment standards)


CASE STUDY: Transport Infrastructure project Based on „Yellow Book“ (Design-Build delivery method), MBR-

funded

Engineer‘s liability and warranties

Coherence and correlation between different instruments is an issue

Delay damages:

Substantiation and enforceability issues

Security instruments:

Efficiency and enforceability issues

Engineer‘s determination preserved subject to efficiency and enforceability issues. DAB deleted. Disputes to be resolved by local commercial courts.

11 FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015

CASE STUDY: Transport Infrastructure project. - Cntd.

Dispute resolution & claim management:

- DAB provisions do not apply

- Engineer’s determination is allowed. Practical enforcement difficulties may be encountered

- Carve-outs: court vs arbitration

differentiating nature of the matter of claim

pre-qualification of the claim by agreement of parties

- Inaccurate designation of the arbitration institution: "European Chamber of Commerce, Paris" vs “International Chamber of Commerce, Paris".


CASE STUDY: Transport Infrastructure project. - Cntd.


Subject to additional provisions, if any, set forth in the Special Conditions, the Consultant’s liability under this Contract shall be as provided by the Applicable Law.

(English language version)

The Consultant shall bear property liability under this Agreement in accordance with the Applicable Law if provided by the additional provisions, as may be set forth in the Special Conditions

(Russian language version, when closely translated into English)

Translation Discrepancies Exemplified by the Provision in the Consultancy Agreement

Challenges and Tasks Faced Development and institutionalization of the consulting

engineering industry Self-governance; reviving/reinventing the efficient national

association Awareness building, training local players to international

industry standards and practices, raising contract management culture

„Loosening“ law to better accommodate FIDIC forms of contract; clear guidance as to their correlation with law

Official translation of contract forms, application guidance, literacy tools

Implementing and potensializing the efficiency of DABs, mediation and other ADR vehicles as well as claim settlement tools


Thank you for your attention!

15

Presentation Teush

Engineering

Transcript of Presentation Teush