The International Federation of Consulting Engineers (“FIDIC”)

International projects can use the standard form contracts described for local projects, but they most frequently use contracts specifically adapted from the standard form contracts provided by the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs‐Conseils) (FIDIC). Depending on the type and complexity of the project and on the tasks and risks shared between the employer and the contractor, either the Red Book (Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer) or the Yellow Book (Conditions of Contract for Plant and Design‐Build) can be used.

The (“FIDIC”) classifies construction contracts into three types: (i) turnkey or engineering, (ii) procurement and construction (“EPC”), and (iii) design‐build and construction.

Other forms of international contracts include the Institute of Civil Engineers (“ICE”) or the New Engineering Contract (“NEC”) currently used in the Crossrail project in London. Since public procurement generally uses their own forms, standard forms are mostly left to private sector contracts. Usually, the application of these standard forms comes as a requirement from foreign investors or financing entities.

Contract Formation and Delivery Methods

In addition to deciding the contractual standards and conditions for a global megaproject, delivery methods must also be determined that may include design‐build contracts, design‐bid‐build contracts or engineering, procurement and construction (EPC) contracts. For example, the most common types of contracts used in Greece for private construction work are (i) measurement contracts; (ii) design‐build contracts; (iii) design‐bid‐build contracts; and (iv) construction management contracts. In public works, design‐build contracts are very commonly used, as it is common practice, in respect of construction agreements used for concession contracts, for the central government and/or local authorities to award them.

Megaproject International Competitive Bids

In megaprojects most contracts are awarded by the government or government agencies based on international competitive bids. Therefore, clauses of these contracts are not easily negotiated. Many contracts which are based on international standard‐form contracts (e.g. the FIDIC conditions of contract), with some modifications, typically tend to favor the employer. It is difficult for the bidders or even the successful contractor to negotiate all the terms. However, parties do seek and get clarifications relating to some of the clauses before the bid submission date and some‐times even manage to have a few of the clauses amended. However, this is rare. Private contracts between, for example, a developer or a special purpose vehicle (SPV) with a contractor or subcontractors are typically negotiated. Even in these contracts, the scope for negotiation is not large and the employer tends to retain their contract forms. Additionally, contracts with subcontracts can be on a back‐to‐back basis so that the provisions in the master agreement are consistent with the provisions in the subcontracts.

In build‐operate‐transfer (BOT), and build‐own‐operate‐transfer (BOOT) projects and projects with developers, both debt and equity funding are used. The income stream is the security provided to the lenders (apart from guarantees granted by the parent companies). As a large number of projects do not permit the lender to take over the projects, and the project itself is not deemed to be a security. One of the recent issues with this model has been that in many projects (particularly road projects), even after the construction phase is over, the contractor or the SPV was not permitted to sell the equity. As a result, more complex arrangements were not entered into and only an escrow arrangement was worked out in which all earnings such as toll collection would be deposited.

However, it is expected that transfer of projects will be permitted more often in the future. This is because most lenders and banks are very reluctant to take over projects and run them, and, therefore, there are very few cases where projects have been taken over by the lenders. Where income streams form the guarantee to the lenders, there have been cases where the lenders have been forced to take up toll collection to recover their payments, which is not an ideal situation.

Megaproject Risk and Regulation

The Grenfell Tower fire in West London on 14 June 2017, which caused 72 fatalities and further injuries, is a horrific example of why the world needs better contracts and regulations. The devastating fire was swiftly followed by industry‐led consultations and public inquiries, some of which are ongoing. A Report to Parliament (2020) after the fire found the UK construction rules to be dangerously lax. However, “while some regulatory changes have been implemented, it is only recently that the first of the major statutory reforms concerning fire safety has come into effect. The reform included the Fire Safety Act 2021, which received Royal Assent in April 2021 – almost four years on from Grenfell.” Meanwhile, the UK government has introduced various schemes to fund the replacement of defective cladding on the building sides, but eligibility and coverage are restricted, and, in most cases, funding is conditional on claimants also pursuing insurance claims and/or warranty claims against those involved in the installation of the cladding. Due to such factors, the English courts have seen a steady stream of claims relating to defective cladding and fire/building safety more generally.

Clause 1: Social and Environmental Rights: Developing Sustainable Contracts

What we are doing to the forests of the world is but a mirror reflection of what we are doing to ourselves and to one another.

– Mahatma Gandhi

In most countries today, environmental approval also considers sustainable development and, as a result, conditions are often imposed in this regard by the environmental authorities in the law and in contracts. Presently the requirements vary from country to country, but the movement is towards standardization on an international and national level. National courts have also considered environmental issues particularly relating to sustainable development and the right of the landowners whose lands have been acquired. Several hydroelectric projects have been postponed in view of lack of proper environmental studies relating to sustainable development.

“Sustainable development is about ensuring that legitimate human needs are met without sacrificing environmental resources in the process.” If one is to believe that States have “adopted” sustainable development as the way forward, this needs to be reflected in what goes on within international organizations of which they are a part. International organizations must be more involved in global development if they are to be representative of their members’ interests (Lorenzo 2018).

For example, the World Bank’s Environmental and Social Framework (ESF) became effective on 1 October 2018, and applies to all Investment Policy Financing (IPF) projects initiated after this date. Though the standards are not quite as extensive as the United Nations 2030 Agenda they respond to many of the Agenda’s goals.

The goals of the ESF are critical to sustainability of all projects even outside the developing world and have been adopted by most multilateral organizations and even privately funded projects and can impact all design and construction contracts on a megaproject financing. Borrowers and projects are also required to apply the relevant requirements of the World Bank Group Environmental, Health and Safety Guidelines (EHSGs). These are technical reference documents, with general and industry specific examples of Good International Industry Practice (GIIP) that should be consulted. The ESF are designed to help borrowers manage the risks and impacts of a project, and improve their environmental and social performance, through a risk and outcomes‐based approach.

In the context of the Belt and Road Initiative and the national strategy for sustainable development, China’s major infrastructure projects (hereinafter referred to as megaprojects) are facing an unprecedented environmental sensitivity period, strategic opportunity period, and value reconstruction period (Malik et al. 2021). Therefore, in addition to paying attention to the progress, cost, and quality of the projects themselves, the stakeholders of megaprojects should also focus on project social responsibilities such as avoiding harm to public safety, maintaining ecological balance, and achieving sustainable development (Ma et al. 2017). Transforming our World: the 2030 Agenda for Sustainable Development. declares that “eradicating poverty in all its forms and dimensions, including extreme poverty, is the greatest global challenge and an indispensable requirement for sustainable development” (Pribrytkova 2020).

In reality, some project stakeholders excessively pursue their economic interests while neglecting social responsibilities, leading to frequent accidents. In 2013, the collapse of the Garment Factory, Sava District Building in Bangladesh, which killed 1127 people, shocked the world. The main reason was the owners’ lack of a strict review mechanism, and the project was multi‐level contracted. Subcontractors cut corners and built‐in violation of regulations; government departments had information asymmetry in those mentioned above lacking social responsibility behaviors, leading to government supervision and management dereliction, which eventually led to tragic accidents (Brunet and Aubry 2016; Xue et al. 2022).

Clause 2: Implied Duties and Obligations Under International Contracts

This is often the case in international transactions. For instance, all contracts must comply with applicable laws, and the contractor shall be obliged to follow construction norms, health, safety and environmental rules, and any other law imposed by the State, at all times. Normally, general principles of contract apply in this regard.

However, certain terms, which necessarily arise from the contractual relationship between the project owner or employer and the contractor, or which are necessary in the business sense to give effect to the contract, will be implied. Implied terms may include that the employer will cooperate with the contractor, or that the employer will not deprive the contractor of possession of the construction site save in accordance with the terms of the agreement. It may also be an implied term that the contractor will do the work in a good and workmanlike manner, use suitable material, and perform his obligations in such a way as to conform to the applicable building regulations.

In the United States, every contract party owes an implied duty of good faith and fair dealing. For example, in a construction contract, parties are typically held to owe an implied duty that they will not hinder or delay each other. An owner who provides plans and specifications for use in construction impliedly warrants that they are suitable for use, and owners are typically held responsible for errors and omissions in their contract documents unless the contractor assumes responsibility for reviewing and completing the design as a design‐builder (and even in that case the contractor may be able to place some degree of reliance on the employer’s partial design and/or site information).

Many courts have held that an owner owes an implied duty to disclose any non‐public “superior knowledge” about the site or the project that a court finds should have been disclosed to the contractor. When furnishing materials or equipment for a construction project, the seller typically owes implied duties that the goods will be of “merchantable” quality and that they will be reasonably fit for their intended purposes. See U.C.C. §2‐314, 315. Such implied warranties may, however, effectively be disclaimed by contract. And in design contracts, architects and engineers may be held to an implied obligation to perform to the “prevailing standard” established for similar services in the area where the work is done. In multi‐prime contracts, owners may owe an implied duty to coordinate their various prime contracts, and prime contractors will probably be held to an implied duty to coordinate their various subcontractors and suppliers.

As an example, Article 246 of the United Arab Emirates (UAE) Civil Code implies a duty to act in good faith upon the parties to a contract, and states that the contract must be performed in accordance with its contents. According to Article 265 of the Civil Code, a contract is to be interpreted in accordance with its clear wording. In the absence of clear wording, the mutual intention of the parties, the nature of the transaction, and the trust and confidence that should exist between the parties in accordance with the custom in such transactions, will be examined.

Every country in the world implies different obligations in their contracts but they also include basic rights to protect contracting parties. For example, In the Republic of Slovenia, construction contracts are concluded in accordance with the provisions of the Obligations Code (OZ), Special Construction Usages (PGU) and the International Federation of Consulting Engineers’ (FIDIC) books.

The term “fitness for purpose” does not apply in construction contracts in Slovenia. Contractors shall deliver what they have bargained for, and employers shall not expect contractors to guess what their future intentions might be.

Under PRC Contract Law, in addition to contractual obligations, the parties of a construction contract are generally required to:

As another example of implied conditions, the law of India recognizes the use of both express and implied terms in a construction contract. While express terms are easily identifiable, implied terms must be read into a contract while examining the intention of the contracting parties. However, such terms must not alter the intended commercial purpose of the contract as understood between the parties. While there is no agreed set of terms which can be implied in a construction contract, certain obligations are understood as impliedly binding on both the employer and the contractor. For example, a contractor is expected to perform its tasks while exercising a standard of care and must provide such materials as are fit to be used for the stipulated works.

Clause 3: Unforeseen Subsurface Conditions

One of the most complex and contentious provisions in international contracts for infrastructure and construction is drafting the allocation of risk for subsurface conditions or as they are sometimes referred to as differing site conditions. The reduction of subsurface risks requires the evaluation of the conditions to the fullest extent possible at the outset of the contract and then determining a proper allocation of risk that is clearly understood and defined in the contract documents.

There are no mandatory provisions under French law. Thus, it is the parties who contractually stipulate who bears the risk of unforeseen ground conditions. In practice, it is often the project owner who bears the risk. Indeed, this is what happens when the contract does not specify who bears the risk. The theory of unforeseen circumstances (théorie des sujétions imprévues) allows compensation to be obtained by the contractor for losses arising from unforeseen ground conditions in the context of public law construction contracts. In private law construction contracts, the theory of unforeseen circumstances (théorie de l’imprévision) may play an equivalent role, in that it enables the contract to be renegotiated (modified or terminated) in the event of new circumstances unforeseen at the time of execution of the contract which make the contract excessively onerous to perform.

Because of these unforeseen circumstances, it is important that the constructor and its engineer carefully review the relevant provisions of the concession agreement that involve design and construction risk assumption and, if at all possible, be involved in the negotiation of that agreement (Hatem and Cordum 2010).

America’s largest inner‐city project, Boston’s Big Dig had major subsurface risk exposures that impacted schedule included design development, hazardous material removal, complexity of interfaces between contracts, unanticipated site conditions such as unchartered utilities, obstructions from old piles and seawalls, unexpected ground conditions, and archeological sites. Critical risk exposures were identified in the project’s finance reports and in the project management monthly reports, as these exposures could have serious impacts on project schedule whether or not these impacts occurred on a critical path. Noncritical paths had to be carefully monitored for serious exposures that could change the status of that path to a critical path.

As described by one Bechtel engineer, “The soil beneath the city has a little bit of everything.” The Big Dig tunnels had to be dug through four distinctly different types of soil – fill at the surface, followed by organics (silt, sand, etc.); a marine soil known as Boston “blue clay”; and, finally, a layer of boulders, gravel, and clay (glacial till) sitting atop the bedrock (Einstein 2012). A particularly large and deep deposit of the blue clay complicated proposed excavations to construct tunnels connecting the Ted Williams Tunnel, the Central Artery tunnels, and the Massachusetts Turnpike. Even small, shallow excavations would collapse without support. The solution was to combine the clay with cement, a “deep soil mixing” technique developed in Japan that makes the soil harder and thus easier to excavate, and makes it act as a buttress (Greiman 2013). Even that was not simple. To access the areas where soil needed to be improved, existing structures had to be moved. The tunnel ground freezing and jacking operations produced another level of unknown conditions and construction claims. Construction costs increased throughout the project and across all contracts as a result of these subsurface conditions (p. 219). As of 30 September 2004, the project reported that differing subsurface conditions represented about 19% of the almost $2B in requested claims and changes – a big number by any count (p. 219).

Differing site condition clauses represents a risk sharing mechanism commonly used in megaproject contracts. If the risk is not shared or allocated in the contract documents, then in the United States by default the common law applies which usually allocates the entire risk to the contractor. These clauses differ from one country to another and can vary widely. It is usually the obligation of the contractor to demonstrate that the conditions differ materially from those described in the contract. As demonstrated in the “Big Bertha” case study, subsurface conditions can create significant contractor and owner risk that includes cost, schedule, project finance, and relationship risk that may impede the project for years to come.

Clause 4: Choice of Law

Party Autonomy is one of the most important concepts in international law and is demonstrated best in the parties’ freedom to choose the law of their contract. Virtually all legal systems and many treaties, and international legal agreements recognize the right to choose the law of your contract. Yet, there is variation in the enforceability and interpretation of these provisions. Enhanced predictability and efficiency are especially important in international settings because of the significant differences between national laws and decision‐makers and the availability of multiple potential forums (Born and Kalelioglu 2021). Some of the key questions in selecting a choice of law to govern your contracts include the following:

1. Is there an applicable treaty, convention, or international law? These may include bilateral or multilateral investment treatments or enforcement of arbitration or judicial decisions.
2. Does the country have a constitution with provisions that may be relevant to international and foreign direct investment?
3. Do the national or local laws include provisions on environmental, labor, finance (investment limits), procurement processes, or other regulatory requirements?
4. Are there criminal laws that may be relevant to an investment such as bribery, financial crimes, fraud, or antitrust violations?
5. Who does the law favor most? The owners, the sponsors, the contractors, others?
6. Who will interpret the law? A court, an arbitrator, a mediator, an expert appointed by the parties.
7. Can the law be modified in the agreement?
8. Is there public policy or mandatory law that is applicable?
9. Will the law be enforced? In what jurisdictions can I bring a cause of action?

It is common for the concessionaire and its contractors to choose a law that is familiar to them and that in their view adequately governs the issues addressed in their contracts. Depending upon the type of contract, different issues concerning the governing law clause will arise. For example, equipment supplies, and other contracts may be entered into with foreign companies and the parties may wish to choose a law known to them as providing, for example, an adequate warranty regime for equipment failure or nonconformity of equipment. In turn, the concessionaire may agree to the application of the laws of the host country in connection with contracts entered into with local customers.

For some megaprojects there may be different choice of law provisions depending on the type of contract. There may be one provision for the financing agreements with the lenders, and another provision for the financing agreement with the equity sponsors. Sometimes, the host country’s legal system will mandate a particular law or will have mandatory provisions that cover part of a contract but not the entire contract. For contracts between construction contractors and the project owner or employer a different law is usually negotiated that will provide more flexibility for the contractors. Which particular jurisdiction’s laws govern a project is a critical question for all parties to a project finance or development agreement.

As an example, In Thailand, the parties may agree on the governing law provision in the project agreements and financing agreements. If the project agreement or financing agreement is governed by foreign law (law other than Thai law), it will be recognized and applied, but only to the extent such law is proven to the satisfaction of the courts of Thailand not to be contrary to the public order or good morals of the people of Thailand.

In the English Chunnel a compromise was agreed upon between the parties to the construction contract calling for ICC arbitration in Belgium and designating not one, nor two, but three different legal systems to govern the relationship. The arbitrators were to apply “principles common to both English law and French law.” Absent such common principles, the agreement was to be construed according to “general principles of international trade law as have been applied by national and international tribunals” (Park 2015).

The concessionaire sought judicial relief outside the arbitral process, asking English courts to restrain the contractors from suspending work pending resolution of the dispute. Ultimately the matter reached the House of Lords. Although admitting that an English court had power to grant an injunction, the Arbitrator reasoned that such power should not be exercised under the circumstances of the case. Noting the heavily negotiated arbitration and choice‐of‐law provisions, rather than a routine standard‐form clause, he wrote as follows.

The parties chose an indeterminate “law” to govern their substantive rights; an elaborate process for ascertaining those rights; and a location for that process outside the territories of the participants. This conspicuously neutral “anational” and extra‐judicial structure may well have been the right choice for the special needs of the Channel Tunnel venture. But whether it was right or wrong, it is the choice which the parties have made. The appellants now regret that choice. …. Notwithstanding that the court can and should in the right case provide reinforcement for the arbitral process by granting interim relief. I am quite satisfied that this is not such a case and that to order an injunction here would be to act contrary both to the general tenor of the construction contract and to the spirit of international arbitration.

Thus, as shown by the Arbitral decision in the English Chunnel, courts and arbitrators will tend to uphold the chosen law of the parties even if it is seriously detrimental to one of the parties. Choice of law is an internationally recognized right that all parties have and protect party autonomy which is crucial to the encouragement of foreign investment in all countries. In the next section we will look at choice of forum and dispute resolution clauses and will see how these two provisions are intricately linked and must be considered together in drafting contracts and financial documents.

Clause 5: Choice of Forum and Dispute Resolution

The whole duty of government is to prevent crime and to preserve contracts.

— William Lamb

Dispute Review Boards

Many contracts initially refer disputes to high‐level executives of the parties before they may be submitted to a court or arbitration panel. Many large complex projects also establish a Dispute Review Board that helps to resolve issues while the job is being performed. Nonbinding mediation is also very commonly used to resolve complex construction disputes. A few companies provide mediation and arbitration services. Two of the largest providers are the American Arbitration Association (AAA) and JAMS, each of which publishes detailed rules for mediation and arbitration.

Figure 10.2 shows the steps used in a dispute resolution process utilizing the Dispute Review Board model. At the Big Dig, every effort was made to resolve disputes internally, which required the parties to agree to waive any claim against each other except in the case of willful conduct or default. The Big Dig’s dispute resolution process required a progression from field office determination through various stages, including senior‐level partnering, executive‐level partnering, mediation before the dispute review board up to litigation, as shown in Figure 10.2. At any point along the way, the dispute could be resolved. As noted in the figure, the longer a dispute took to resolve, the greater the expense; thus, early resolution was always encouraged. The internal resolution of disputes allowed the integrated and collaborative process to continue throughout the life of the project. During the project, more than 25 000 claims were generated between the contractors and the project owner.

Lessons learned from dispute resolution under a Review Board Model include the following:

1. To prevent large backlogs of claims, dispute resolution programs “must have robust and experienced staffs in both the contractor and owner organizations so that claims can be addressed as they arise and do not migrate to the end of the project as part of an omnibus claim” (Dettman et al. 2010).
2. Dispute resolution methodologies should be designed to encourage conflict avoidance and dispute prevention before controversies escalate and cause serious communication breakdowns among the key stakeholders.
3. Creating proactive, innovative dispute resolution processes with independent oversight is essential in large, complex projects where schedule delays can cause serious financial losses.
4. Constantly assess the effectiveness of the dispute review board framework and revise the processes and procedures as the requirements and priorities of the project change. As an example, if the mediation process proves cumbersome because mediators are issuing opinions through an evaluative mediation process, you may want to change the process so that the mediators merely try to facilitate a resolution between the disputing parties rather than render a formal decision. Another change might be to reduce the dispute review board from five to three members to expedite the process and save on costs.
5. The dispute review board process can be effective if the disputing parties are compelled to learn the facts and evaluate not only their position but that of the opposition and the dispute is resolved in a timely manner (Harmon 2009). This can be accomplished by requiring that each step of the process has a clear deadline so that decisions are not unduly delayed.

According to the construction industry reports, partnering also occurs relatively often in the Swedish market. The industry has seen an increased use of this alternative work method and contracting model from both private and public property owners/ building proprietors over the last 7–10 years.

Examples of Global Dispute Resolution Provisions

Clause 6: Step‐in Rights

It is important that Contractors are aware in global projects of the right of a lender to step‐in and take over a project when the project company is not performing in accordance with the project contract. Some national laws expressly authorize the contracting authority to take over temporarily the operation of the project, normally in case of failure to perform by the concessionaire, in particular where the contracting authority has a statutory duty to ensure the effective delivery at all times of the project concerned. In some legal systems, such a prerogative is considered to be inherent in most government contracts and may be presumed to exist even without being expressly mentioned in legislation or in the project agreement.

Step‐In clauses are typically negotiated between the project lender(s) and the project owners or sponsors. A typical step in clause is shown in Box 10.3.

Clause 7: Mandatory Law and Public Policy

All countries have laws that cannot be overridden in a contract and must be clearly understood as a requirement of a contract even if the choice of law is that of another country. For example, in Belgium indemnifications must be paid to distributors for termination of a contract that has not concluded or is not subject to grounds for breach of contract. Pursuant to an EU Directive termination of agency contracts before the legal termination date may also result in required indemnity payments.

Although contractual freedom is the rule, in France, some clauses may be unenforceable (deemed unwritten – réputée non écrite). This is particularly the case if the clause is contrary to French public order (ordre public) or mandatory rules (lois de police) within the meaning of Art. 3 of the French Civil Code. Examples include the decennial liability regime (obligations of contractors for up to ten years after completion of a project) and the protection of subcontractors in accordance with laws on subcontracting.

Many countries have enacted laws that apply extraterritorially regardless of the choice of law of the parties or the location of the contract. These mandatory laws include some criminal acts such as Bribery, Tax Fraud, Securities violations, and Antitrust laws.

In the United States criminal law is usually territorial. It is a matter of the law of the place where it occurs. Nevertheless, a surprising number of criminal laws apply extraterritorially outside of the United States. Application is generally a question of legislative intent, express or implied. There are two exceptions. First, the statute must come within Congress’s constitutional authority to enact. Second, neither the statute nor its application may violate due process or any other constitutional prohibition (Doyle 2016). Although the crimes over which the United States has extraterritorial jurisdiction may be many, so are the obstacles to their enforcement. For both practical and diplomatic reasons, criminal investigations within another country require the acquiescence, consent, or preferably the assistance, of the authorities of the host country. The United States has mutual legal assistance treaties with several countries designed to formalize such cooperative law enforcement assistance. It has agreements for the same purpose in many other instances. Cooperation, however, may introduce new obstacles. Searches and interrogations carried out jointly with foreign officials, certainly if they involve Americans, must be conducted within the confines of the Fourth and Fifth Amendments. And the Sixth Amendment imposes limits upon the use in American criminal trials of depositions taken abroad (p. 2).

Clause 8: Force Majeure

The definition of “force majeure” will vary from project to project and in relation to the country in which the project is to be located. The definition of “force majeure” generally includes “risks beyond the reasonable control of a party, incurred not as a product or result of the negligence of the afflicted party, which have a materially adverse effect on the ability of such party to perform its obligations.” Sometimes an even stricter requirement, requiring impossibility of fulfillment, is imposed. This is a very difficult fact to prove and could result in the operator bearing an unacceptable level of risk. Parties should also consider whether it is appropriate to exclude consequences which could reasonably be avoidable by either party (World Bank 2021).

The concept of force majeure is well known in U.S. construction contracting. Although some contracts allow compensation to a contractor whose progress is interrupted by such unexpected events, most contracts merely allow only an uncompensated extension of time. Force majeure generally refers to a clause that is included in contracts to remove liability for natural and unavoidable catastrophes that interrupt the expected course of events and prevent participants from fulfilling obligations typically referred to as “Acts of God.”

Force majeure events are typically defined to include two common provisions:

• Only unforeseen events
• Events outside the control of both contract parties.

As an example, labor strikes may be excluded from this category if they arise from specific acts or omissions of the affected contractor (i.e., to be distinguished from national or regional strikes). The fact that a project becomes more difficult or costly due to rising costs of labor or materials is generally not regarded as a force majeure condition, although courts may regard sudden and extreme price escalations in this category. Many U.S. employers have argued that the COVID‐19 pandemic is a force majeure event for which no resulting costs are recoverable, but contractors counter that claims for changes in work and lost efficiency are compensable even if pure delay costs are not. This area of U.S. construction law is likely to undergo substantial development as a result of economic burdens imposed by the pandemic. In some limited cases, performance may also be excused (i.e., effectively allowing its termination) on force majeure principles if the contractor can show that the specified work was frustrated by impossibility or commercial impracticability.

Force majeure events may widely be defined as extraordinary, unpreventable, and unforeseeable circumstances caused by a natural phenomenon (such as an earthquake, landslide, hurricane, drought, and others) or social and economic circumstances (such as war, blockade, import and export bans in the State interest and others) which are not controllable by the will or action of either party and due to which the parties cannot perform their contractual obligations. The mere fact that a contract has become uneconomic is not sufficient grounds for a claim for force majeure. The parties are also free to agree on the events or circumstances constituting force majeure and how such events or circumstances shall be treated.

In French law, force majeure is provided for in Art. 1218 of the Civil code and is defined as an event beyond the aggrieved party’s control which could not be foreseen at the time of the conclusion of the contract and the effects of which cannot be avoided, preventing the performance of the obligation arising from the contract. The aggrieved party can claim for an extension of time, and either party can terminate in case of extended force majeure. A contract which has become uneconomic might lead to a claim under the imprévision theory, under public or private law (Art. 1195 of the Civil Code), not under force majeure.

In India, exclusion of liability for force majeure is provided for in Article 1148 of the Civil Code (Code Civil). Liability can be entirely excluded for any loss arising from events that are: unforeseeable. unavoidable, and external (that is, completely outside a party’s control). The effect of a force majeure event on the contract varies according to the nature of the event. It may: suspend performance of the contract, vary the contract by altering its scope, or terminate the contract where performance has been rendered impossible.

The parties can choose to apportion the risks of force majeure between them by agreeing that the contractor will either bear all risks associated with force majeure events, or on the contrary exclude his liability entirely. In practical terms, parties should carefully draft their force majeure clauses to: Define which events amount to force majeure. Strikes, for example, may be excluded, or the parties may provide that only strikes affecting a particular sector amount to force majeure. The parties may decide that the consequences of the event will be apportioned between them according to a certain formula or criteria (e.g. the contractor will be entitled to an extension of time but will bear the disruption costs).

Bilateral Investment Treaties

An important consideration for a private investor in an emerging market or in a less developed country is the existence of the Bilateral Investment Treaty (BIT). These Treaties are entered into by countries seeking protection for investments made by investors from their own state. For example, State A (the host state) agrees to provide certain protections to investors coming from State B (the home state) and vice versa. If the investor considers that these protections have been violated, investment treaties also grant the investor permission to bring an arbitral claim directly against the host state. As a result, the agreement is entered into by the home and host state (collectively, the treaty parties) but the protections are created for the benefit of, and are typically enforced by, an investor from one state against the other state.

Investment treaties expressly protect investors against certain unilateral actions by host states, such as expropriation without compensation, nationalization of an industry, and discriminatory treatment, and permit investor‐state arbitration to enforce these obligations. For home states, an increase in efficient foreign investments will not just benefit their investing nationals; it is also likely to benefit their non‐investing nationals because the state’s development is likely to be enhanced through increased tax revenues. For host states, promoting such investments means increasing development through the creation of new jobs, the development of new infrastructure, and the enhancement of tax revenues. The U.S. negotiates investment treaties on the basis of a model text as do most countries. The Bilateral Investment Treaty Program administered by the U.S. Department of State and the U.S. Trade Representative provides investors with six core benefits:

• U.S. BITs require that investors and their “covered investments” (that is, investments of a national or company of one BIT party in the territory of the other party) be treated as favorably as the host party treats its own investors and their investments or investors and investments from any third country. The BIT generally affords the better of national treatment or most‐favored‐nation treatment for the full life cycle of investment – from establishment or acquisition, through management, operation, and expansion, to disposition.
• BITs establish clear limits on the expropriation of investments and provide for payment of prompt, adequate, and effective compensation when expropriation takes place.
• BITs provide for the transferability of investment‐related funds into and out of a host country without delay and using a market rate of exchange.
• BITs restrict the imposition of performance requirements, such as local content targets or export quotas, as a condition for the establishment, acquisition, expansion, management, conduct, or operation of an investment.
• BITs give covered investors the right to engage the top managerial personnel of their choice, regardless of nationality.
• BITs give investors from each party the right to submit an investment dispute with the government of the other party to international arbitration. There is no requirement to use that country’s domestic courts.

The United States presently has 47 Bilateral Investment Treaties, though two of those treaties will terminate after the covered investments are completed. As of 2022 more than 2228 investment treaties are in place around the world. Some of the countries with the largest number of BITS in force include China at 110, the United Kingdom at a 98, Turkey at 100, Germany at 125, and India with 86 (UNCTAD 2022). All foreign investors should be aware of their rights under these Bilateral Investment Treaties, and to the extent a Treaty is not available the contract or Concession Agreement between the foreign investor and the host country should include at a minimum full compensation for expropriation or nationalization and protection against discrimination. A complete listing of Bilateral Investment Treaties for all countries can be found at the Investment HUB at the United Nations Commission on Trade and Development (UNCTAD 2022) as well as at the U.S. Department of State for US. Treaties.

Emerging Markets Impacting Contracting in Megaprojects

As presented in previous chapters emerging markets and the developing world constituting about 60% of the GDP and 80% of the population creates opportunities for development projects that focus on energy, transport, agriculture productivity, and social and environmental initiatives. This opportunity also creates numerous legal issues not only for the financing of these projects but also for the implementation of these projects in difficult terrains with serious economic and finance risk. These risks range from environmental, social and governance issues (ESG) to supply chain and procurement risk to offtake purchasing agreements, investment treaties, corporate responsibility and liability and green procurement in contracts among many other issues.

Oil and gas companies struggle to find new growth opportunities in mature basins. Remote and undeveloped regions of the world offer the potential for significant value creation with their abundant and often under‐exploited oil and gas resources. However, along with these opportunities and potential rewards, emerging markets present substantial obstacles and risks, as these regions can be plagued with numerous problems, including unstable political systems, weak rule of law, corruption, lack of transparency, and human rights issues. Companies are exposed to significant legal and reputational risks if they do not effectively identify and manage the challenges and risks in these regions. In recent years, directors and officers of companies operating in these regions have been subject to increased scrutiny.

The questions below are based on a compilation of issues that have arisen in the developing world through the author’s professional experience and the experience of the global financial institutions as reflected in the numerous documents and case studies that have been issued by these institutions over many decades. Checklists should never be seen as a comprehensive list of all provisions that should be in a contract. Some contracts may have laws that impact the project and must be included in the project contract, while other contracts may require less detail but more a broad summary of the applicable law.

Checklist for contract development in emerging markets:

1. How transparent is the host government and the political system where the project will be located?
2. Are Special Purpose Vehicles permitted as a form of corporate organization or are other options available?
3. What is the ability of the Public to question and protest project plans if they are averse to the building of the project?
4. What are the cultural issues concerning large scale megaproject development?
   1. Are there important social requirements that must be considered in the project framework?
   2. Are there particular issues regarding green development, climate change and other environmental concerns?
   3. Will there be community involvement in development decisions?
   4. What are the expectations of the local community?
5. How lengthy is the project regulatory approval process?
   1. To whom is the risk of permitting allocated?
   2. Will there be one stop shopping for all permits?
   3. Will the government assist with the obtaining of permits?
6. What are the Labor Customs and Practice?
   1. The viability and roles of the trade unions
   2. The ability to employ managers and workers outside the host country
   3. The application of international labor standards
   4. The right to strike
7. What are the procurement requirements?
   1. How are projects advertised and noticed to potential bidders?
   2. Are home country bidders preferred over foreign bidders?
   3. What are the general project criteria for selecting the project designers and contractors?
   4. Is the project low bid or subject to weighting criteria?
   5. How are projects scored or evaluated?
   6. Will the considerations for selection be shared with the public?
   7. Can suppliers come from other countries? Are there any exceptions?
8. What are the Key Environmental, Social and Governance Considerations?
   1. What are the sustainability requirements required by the countries laws or regulations and who oversees that these requirements are met?
   2. What are the rights of the members of the local communities impacted by the project?
   3. How are climate change and environmental impacts assessed?
   4. What is the availability of skilled labor and how will shortfalls be remedied?
   5. What are the standards for health, safety, and security under the host country laws?
   6. What are the implications if sponsors fail to meet ESG requirements?
9. Is there a Bilateral Investment Treaty with the host country?
   1. Has the Host Country implemented a bilateral investment treaty?
   2. What are the protections under this Treaty? Are investors protected from expropriation, nationalism, discrimination, compensation for violations?
10. Does the country have a Public‐Private Partnership Law or Framework?
    1. What are the minimum and maximum investment provisions?
    2. How are these arrangements structured legally?
    3. What are the potential liabilities for the private partners?
11. Does the country have security rights for creditors?
    1. If so, what are the terms and formalities for security creation and are these liens enforced?
    2. In what assets can security be obtained?
    3. Are there any restrictions on enforcement of security? Can a blanket lien be obtained over all assets?
12. Employment Laws
    1. Are there any restrictions on foreign workers, technicians, engineers, or executives being employed by a project company?
    2. Will workers from other countries be able to retain their home country rights including protections from discrimination or termination?
13. How is Force Majeure Applied?
    1. Does the country have a legal definition for force majeure?
    2. Is it stricter or more flexible than the stakeholder’s home countries laws?
    3. Can a force majeure provision be agreed upon by the parties that may create lesser or greater liability than the home country law?
14. Bribery and Corruption
    1. Are there laws that protect against corruption, fraud, and other related crimes?
    2. What are the penalties for bribery and corruption?
    3. Are the laws enforced?
    4. Is the host country a member of any treaty such as the Budapest Convention?
15. Arbitration
    1. Is arbitration of disputes permissible and may the parties choose the arbitral forum where disputes will be resolved. May the parties select their own arbitrators?
    2. Are there any matters that are not arbitrable?

Discussion Questions

1. What are the different types of contracts that can be used in a global infrastructure project?
2. If you are a contractor or consulting firm what provisions will be most important to you in protecting your company from the damage that may occur from a force majeure event?
3. What are the employment and labor provisions you will be most concerned about in a global infrastructure contract?
4. What are the advantages of arbitrating a dispute between parties rather than litigating in a foreign court?
5. Why is choice of law important in a global contract?
6. What are some important internationally recognized standards and how will they be beneficial in an international infrastructure project contract?
7. What is the role of a concession agreement and who are the typical parties to the agreement?
8. What is a mandatory law and how does it impact a written contract in a global transaction?
9. What is the purpose and benefit of a bilateral investment treaty?
10. What is the purpose of the U.S. Foreign Corrupt Practices Act and who does it benefit in a global infrastructure contract?