Volume III Issue No.

The Global Leader in Managing Construction Risk MANAGING RISK ON MAJOR INTERNATIONAL CONTRACTS AFFECTED BY CIVIL UNREST
In the first few months of 2011 political turmoil has spread across the North African States and through the Middle East. Some countries have responded quickly and quietly to resolve matters whereas in other countries such as Libya, Egypt, Yemen and Bahrain peaceful protests have escalated into riots, insurrection and even civil war. In Libya where civil war has broken out, the country has ceased to function politically and economically, with daily military action and sanctions imposed on it by both the US and the UN. The unrest has led to the evacuation of thousands of expats working in the country, abandoning local offices and construction projects, leaving foreign companies with millions of dollars at risk. The commonly asked question at the moments is: in such circumstances what is the best way to minimise these risks and increase a companys likelihood of being paid any outstanding monies due and recovering its costs incurred as a consequence of the problems? At the first murmuring of disquiet, Hill recommends its clients review their country evacuation plans to establish the designated exit routes. These should be made known to all staff, and each expat staff member should register with their respective embassy. Hill also recommends keeping in regular contact with the embassies to obtain the latest information. Hill suggests that each project has its own evacuation plan to efficiently and effectively close it down until the unrest has ceased and maximise the recovery of costs. This plan should include such items as set out below. The project administration processes in most cases ought to be established from the Project outset. 1) convening an emergency meeting with Employer/Engineer/Project Manager to discuss the situation and form a plan of action. If the Works are to be put on hold due to the unrest, then it would be in the Contractors interest to obtain an instruction in writing or verbally (to be confirmed later in writing by the Contractor) to suspend the Works. 2) conducting a video and/or photographic survey of works completed and in progress, site setup (offices and labour camp), materials on and off site (with inventory) and the Contractors plant and equipment. 3) securing the site and office compounds as best able and bringing plant and equipment into secure areas, disabling to discourage theft. 4) Informing subcontractors and suppliers of the situation. 5) scanning, if possible, the project documentation onto a portable hard drive (with a remote backup), if not the hard copy should be boxed up for couriering/shipping. These will be required to substantiate any future claims. 6) checking and complying with the notification requirements under the contract and any insurances which provide cover for such matters. As part of the project evacuation plan each of these tasks should be assigned to a member of the project team. Ensure they understand what is required so they record the relevant information and complete allocated tasks as quickly as possible. On returning to the Site, immediately the Contractor should carry out a video/photographic survey of the works, site set up, materials on and off site, and Contractors plant and equipment to determine and record any loss or damage. This will assist in proving any claims that the Contractor may wish to pursue. In these circumstances where do the contract risks lie? Hill has considered the provisions of a number of different types of standard form contracts: Build only, EPC and DBO. Generally these provide that (within the country) civil war, hostilities, rebellion, revolution, insurrection, military or usurped power, riot, commotion and disorder are Employer Risk items (or referred to as Exceptional Events) and relieve the parties of any further obligations (except payment) that are affected by these events. Furthermore, they provide the Contractor with a mechanism for recovering its additional cost incurred due to the consequences of these events. In relation to insurances these standard forms provide that such events are excluded from any insurance cover procured by the Contractor. Notwithstanding the general position, Hill recommends (as every contract is different) that its clients carefully check their contract provisions to see if any amendments have been introduced to the allocation of risk and/or scope of insurance. Recovery of the Additional Costs Incurred Typically, most contract conditions provide the Contractor with remedies in the event of civil war, riots, insurrection, etc. These include: termination for prolonged suspension and the recovery of associated costs, extension of time and recovery of additional costs, recovery of costs incurred due to repair or replacement of the contractors plant and equipment, material, and the repair of damaged work or demolition and reconstruction of the Works or part of the Works. Again, the Contractor will need to check, and comply with any notification requirements under its contract, if any, to maintain its rights under the contract. With regard to outstanding payments due and/or matters in dispute it may be difficult to resolve any matters through the local courts or arbitration institute. Enforceability may also be difficult given any collapse of the political infrastructure. However, a party may be successful if the contract provides for International Arbitration. An arbitral award in a partys favour may be pursued in the home country of the other party or alternatively in other countries where the other party may have assets if the countries concerned are signatories to the New York Convention 1958. Alternatively the party may be able to make use of any bilateral treaties between the two parties countries.
David Brodie-Stedman Senior Vice President & MEA Managing Director Abu Dhabi Office Butti Al Otaiba Building, Suite 1601 & 1602 Sheikh Khalifa Street P.O. Box: 5201, Abu Dhabi U.A.E. Tel : +971 2 627 2855 Fax: +971 2 627 2042 E-mail: auh@hillintl.com

As always Hill recommends that its clients in these situations also seek legal advice to establish whether there are any provisions in the governing law of the contract or national laws (if different) which may enhance or provide alternative arguments to assist the recovery of any additional costs incurred as a consequence of the unrest. Matters of Particular Concern Of particular concern is that at the end of the unrest the Employer may no longer exist as a legal entity to pursue a claim or course of action against. Most construction contracts require the Contractor to provide an unconditional on-demand performance bond. The concern is that the Employer in the absence of the Contractor presents the performance bond to the bank and receives the amount guaranteed. Hill considers that during the suspension of the works that, if possible, the Contractor should continue to provide the specified insurances for the Project in case matters occur that are not as result of any unrest and potentially expose the Contractor to a claim. It is possible that during the suspension period warranties may expire or perhaps due to an absence of the Contractors control of the site the specialist subcontractors and suppliers later refuse to honour their warranties. Giving due consideration such matter and dealing with them at the time can greatly reduce risks and provide a better platform for future settlement of entitlement. Hill can provide advice and assist contractors manage their risks in situations where their projects are affected by unrest and prepare and pursue claims on behalf of the contractors to recover their additional costs.

Jeffrey Badman, Operations Director Maria Daly, Senior Consultant

Hill International, with 3,000 employees in 100 offices worldwide, provides program management, project management, construction management and construction claims and consulting services. Engineering News - Record magazine recently ranked Hill as the 11th largest construction management firm in the United States. For more information on Hill, please visit our website at www.hillintl.com.

Bill Kennedy Senior Vice President & AMEA Managing Director Dubai Office Sultan Business Centre 5th Floor, Suite 501 P.O. Box: 71467, Dubai - U.A.E. Tel. : +971 - 4 - 337 2145 Fax : +971 - 4 - 335 6077 E-mail : dxb@hillintl.com

Disclaimer: This article does not constitute advice, legal or otherwise, and is provided only as general commentary. Appropriate professional advice should always be obtained before taking or refraining from taking any action in relation to such information and/or the application of applicable law. This article and the materials contained in it are provided on the basis that all liability for any loss or damage, whether direct or indirect, arising out of or in connection with any use or reliance upon this article is excluded to the fullest extent permitted by law.