UNCITRAL Guide (резюме, English)

Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works

Правовое руководство по составлению международных контрактов на строительство промышленных объектов

(English version)

Summary

Резюме 'Правового руководства по составлению международных контрактов на строительство промышленных объектов' (Справочника Юнситрал) предназначено для руководящих работников, не являющихся юристами, или других сотрудников, которым необходимо получить представление об основных вопросах, охватываемых конкретным типом статьи контракта, но у которых нет необходимости в глубоком и подробном рассмотрении вопросов, содержащихся в основном тексте главы.

См. также: ️ версия на русском языке + PDF русс/англ



01 Pre-contract studies

02 Choice of contracting approach

03 Selection of contractor and conclusion of contract

04 General remarks on drafting

05 Description of works and quality guarantee

06 Transfer of technology

07 Price and payment conditions

08 Prominence supply of equipment and materials

09 Сonstruction on site

10 Consulting engineer

11 Subcontracting

12 Inspections and tests during manufacture and construction

13 Completion, take-over and acceptance

14 Passing of risk

15 Transfer of ownership of property

16 Insurance

17 Security for performance

18 Delay, defects and other failures to perform

19 Liquidated damages and penalty clauses

20 Damages

21 Exemption clauses

22 Hardship clauses

23 Variation clauses

24 Suspension of construction

25 Termination of contract

26 Supplies of spare parts and services after construction

27 Transfer of contractual rights and obligations

28 Choice of law

29 Settlement of disputes

Посты

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    01. Pre-contract studies

    Pre-contract studies assist the purchaser in deciding whether to proceed with an industrial works project and in determining the nature and scope of the works. They are in most cases carried out by or on behalf of the purchaser (paragraphs 1 to 5).

    Pre-contract studies may include opportunity studies (paragraph 6), preliminary feasibility studies (paragraphs 7 and 8), feasibility studies (paragraphs 9 to 11) and detailed studies (paragraph 12).

    If the purchaser does not have within his own staff the expertise necessary to perform the pre-contract studies, he may wish to consider engaging an outside consulting firm in which he has confidence. The consulting firm may be selected by means of selection procedures designed to promote competition among prospective consulting firms (paragraph 13).

    As a general proposition, the pre-contract studies should not be conducted by a firm which may be engaged as a contractor to construct the works, due to the potential of a conflict of interest; although in some highly specialized fields it may be necessary for the studies to be conducted by a potential contractor. However, it may be acceptable to the purchaser for the firm which conducted the pre-contract studies merely to supervise the construction of the works by other firms (paragraphs 14 and 15). On the other hand, in some cases it may be advantageous to the purchaser for the firm which performs the pre-contract studies to be engaged subsequently to supply the design or to serve as the consulting engineer in connection with the construction. However, the purchaser may wish to consider the possibility of a conflict of interest in that case (paragraph 16).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    02. Choice of contracting approach

    A purchaser who intends to contract for the construction of industrial works has a choice of entering into a single contract with a single enterprise or a group of enterprises, which will be responsible for performing all obligations needed for the completion of the construction, or dividing the obligations among several parties entering into an individual contract with each party. In addition, the purchaser may construct a portion of the works. Which technique he adopts may depend on several factors (e.g., whether the technology to be used in the works is the exclusive property of a single supplier, or whether the purchaser has the capability to co-ordinate the performances of several parties). Within each of these techniques, there are different possible approaches to contracting (paragraphs 1 to 3).

    The contractual approach whereby a single contractor is engaged to perform all obligations needed for the completion of the entire works is referred to in the Guide as the "turnkey contract approach". Where competitive tenders to construct the works are solicited from potential turnkey contractors, each tender will be based on the individual design of the tendering contractor, and the purchaser will be able to choose the design which is most responsive to his requirements. However, comparison of the different designs may sometimes be difficult. A turnkey contractor may sometimes be motivated more by a desire to offer an attractive price than by the need to ensure the durability, reliability and ease of maintenance of the works. On the other hand he usually has no incentive to over-design the works (paragraphs 4 to 6).

    In some cases, a single contractor, in addition to assuming the obligations of a turnkey contractor, may undertake to ensure that after the works is completed it can be operated and achieve agreed production targets by the purchaser's own personnel, using raw materials and other inputs specified in the contract. This approach is referred to in this Guide as the "product-in-hand contract approach" (paragraph 7).

    Since a single contractor bears a high degree of risk in performing all the obligations needed for the completion of the works, and must incur costs to guard against this risk, the total price of the works may be lower if several contractors are engaged than if a single contractor is engaged (paragraph 8).

    The construction of a large-scale industrial works may be beyond the technical or financial means of a single enterprise. Accordingly, the purchaser may contemplate entering a contract with a group of enterprises able, jointly, to provide the necessary resources and expertise with which to construct the works. One means of doing so is for the purchaser to enter a contract with a single enterprise which subcontracts for the performance of certain of its obligations under the works contract (paragraphs 9 and 10). Another approach is for the purchaser to enter a contract with a group of enterprises which has combined to perform the obligations of the contractor. It may be advisable for the contract to describe the responsibilities and liabilities undertaken by such a group or its members in a clear manner to avoid implying certain legal consequences which may arise under the applicable law by the use of a particular term (paragraph 11).

    Depending on whether or not the group takes the form of an independent legal entity, different considerations will apply. If the group has not integrated into an independent entity, it is desirable for the contract to resolve the question of whether each member of the group is to be liable for the performance of the obligations of all of the members or only of those which that member is to perform. It may also be desirable for the contract to deal with other issues arising in the use of such an arrangement (paragraphs 12 to 16).

    Where the purchaser divides all the obligations needed for the completion of the works among two or more parties, he must co-ordinate the scope and the time of the performances under each contract so as to achieve his construction targets. An approach involving several contracts may facilitate the use by a purchaser of local contractors to construct portions of the works. The way in which the construction is to be apportioned among the various parties will depend upon the nature and size of the works and the national policy followed by the country of the purchaser (paragraphs 17 to 20).

    The risks borne by the purchaser in connection with the co-ordination of several contracts could be considerably reduced by employing a consulting engineer to advise the purchaser on how to achieve a proper co-ordination. Alternatively, the purchaser may engage a construction manager with a wider scope of responsibility. Another technique is to have one of the contractors assume responsibility for some part of the co-ordination (paragraphs 21 to 23).

    The purchaser may also reduce the risks connected with engaging more than one contractor by providing that one of the contractors is to be responsible for the transfer of the technology, the supply of the design for the entire works and the construction of a vital portion of the works. This contractor may also be responsible for handing over to the purchaser at an agreed time completed works which are capable of operating in accordance with the contract, unless he is prevented from doing so by the failure of another party engaged by the purchaser (paragraph 24). Another approach available to the purchaser is to enter into a works contract with a single contractor for the construction of the entire works in accordance with technology and a design supplied to that contractor (paragraph 25).

    The construction of the works may be affected in the context of a joint venture entered into between the contractor and the purchaser. A joint venture has certain advantages and disadvantages for each party (paragraphs 26 to 29). The joint venture may be based on a variety of legal relationships. When creating a joint venture, the parties should take into account the relevant rules of the applicable law, which are often mandatory (paragraphs 30 and 31).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    03. Selection of contractor and conclusion of contract

    There are two basic approaches to the conclusion of a works contract. Under the first approach, the purchaser invites tenders from enterprises to construct the works, and the contract is concluded on the basis of the tender selected by the purchaser through formal tender procedures. Under the second approach, the purchaser negotiates the contract with enterprises selected by him without formal tender procedures. The purchaser may not have complete freedom to choose the approach he wishes to adopt in concluding the contract (paragraphs 1 to 3).

    The tendering approach may be implemented through the open tendering system or the limited tendering system. Tenders may be restricted to those of enterprises which have been qualified by the purchaser in accordance with pre-qualification procedures. The open tendering system, under which all interested enterprises are invited to submit tenders for the construction of the works, provides competition among enterprises but may also be the most formal and costly of the procedures for the conclusion of a works contract. The limited tendering system, where only certain enterprises are invited to submit tenders, allows for some competition, but usually less than under the open tendering system. Negotiation of the works contract with a number of potential contractors or with only one such contractor may avoid the need to adopt the formalities of the tender procedures (paragraphs 5 to 9).

    The legal rights and obligations of parties engaging in tendering procedures may be regulated by mandatory rules of the applicable law or by the rules of a lending institution financing the project (paragraph 10). When the open tendering approach is adopted, it may be appropriate to require potential tenderers to pre-qualify in order to limit the number of tenders to be considered. An enterprise applying to be pre-qualified may be required to complete a questionnaire which seeks to elicit relevant information about the enterprise. On the basis of the replies to the questionnaire, the purchaser may select enterprises in accordance with criteria for pre-qualification which have been established by him (paragraphs 11 to 14). When the purchaser has sufficient information about the works to be constructed, he may invite tenders from those enterprises whose tenders are solicited. Under the open tendering system, the invitation is communicated by means of an advertisement, which may be circulated internationally or more restrictedly. Under the limited tendering system, the invitation to tender is sent individually to enterprises selected by the purchaser, accompanied by a full set of documents to be provided to prospective tenderers (paragraphs 15 to 18).

    The documents to be provided to prospective tenderers usually include instructions to tenderers conveying information with respect to the preparation, contents, submission and evaluation of tenders, and model forms of the documents which are to be submitted by the tenderer with his tender (paragraph 19). The instructions may specify all the purchaser's requirements in respect of the tenders, including the criteria they must meet to be successful. Where model forms of the tender documents are not supplied by the purchaser to tenderers, the purchaser's requirements in their regard may be set out in the instructions. It is desirable for the purchaser to prepare the contractual terms that are to form the basis of the works contract and to supply them to tenderers. The purchaser may wish to consider requiring tenderers to submit a tender guarantee meeting specified criteria (paragraphs 20 to 30).

    Tenders are usually opened in the presence of the tenderers or their representatives or in public. A private opening, without the tenderers being present, may be justified by exceptional circumstances. After tenders are opened, they are compared and evaluated with a view to identifying the tender which complies with the purchaser's requirements and is most acceptable to him. The purchaser then proceeds to select the successful tenderer. The purchaser may, in certain circumstances, reject all tenders (paragraphs 31 to 43).

    Under the negotiation approach, the purchaser contacts one or more enterprises which he judges to be capable of constructing the works, informs them of his requirements, and requests offers. Documents describing the scope of the construction and main technical characteristics of the works required and containing the contractual terms required by the purchaser may be submitted to the enterprises. No formalities are usually required for making or evaluating the offers, or for negotiating the contract. In certain circumstances the purchaser may be able to combine the tendering and negotiation approaches (paragraphs 44 to 47). The parties may find it advisable to reduce their agreement to writing. The parties may also wish to agree on when contractual obligations between them are to arise, either on their entering into the contract or as from the date when a specified condition is fulfilled (paragraphs 49 and 50).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    04. General remarks on drafting construction contract

    Each party may find it desirable to establish for himself a procedure setting out the steps which it is necessary to take in negotiating and drawing up a works contract. When tendering procedures are adopted prior to entering into the contract, it is necessary for a first draft to be prepared by the purchaser to be submitted to prospective tenderers with the invitation to tender. If the contract is entered into on the basis of negotiations, a first draft may be prepared by one of the parties after negotiations have taken place on the main technical and commercial issues. Each party may find it useful to designate one person to be primarily responsible for supervising the preparation of the contract documents (paragraphs 1 to 3).

    In drawing up the contract the parties should take into account the law applicable to the contract. They should also take into account the different types of relevant mandatory legal rules of an administrative, fiscal or other public nature in the country of each party (paragraphs 4 and 5). The parties may find it useful to examine standard forms of contract, general conditions, standard clauses or previously concluded contracts as aids to drafting, though their provisions should not be adopted without critical examination (paragraph 6).

    The contract may be drawn up in only one language version, or in the two languages of the parties where those languages differ. If the contract is drawn up in two language versions, it is advisable to specify which version is to prevail in the event of a conflict between the versions. If the parties provide that both versions are to have equal status, they should attempt to provide guidelines for the settlement of disputes arising out of a conflict between the versions (paragraphs 7 and 8).

    The parties may wish to identify and describe themselves in a document which is designed to come first in logical sequence among the contract documents, and to perform a controlling role over the other documents. That document should set forth the names of the parties, their addresses, the subject-matter of the contract, and also record the date on which and the place at which the contract was signed. Parties to works contracts are usually legal entities, and the parties may wish to investigate prior to entering into the contract such issues as the capacity of the entity to enter into the contract and the authority of an official to bind the entity (paragraphs 9 and 10).

    The contract should be reduced to writing. It may, in addition, be desirable for the documents forming the contract to be clearly identified, and rules provided for resolving inconsistencies between contract documents (paragraphs 11 and 12). The parties may wish to clarify the extent to which oral exchanges, correspondence and draft documents which came about during the negotiations may be used to interpret the contract documents (paragraph 13).

    The parties may wish to provide that headings and marginal notes used in the contract to facilitate its reading are not to be regarded as affecting their rights and obligations. If considered desirable, recitals may be included in the controlling document to describe the object of the contract, or the context in which it was entered into (paragraphs 14 and 15).

    Works contracts frequently require a party to notify the other party of certain events or situations. It is desirable to require that all notifications be given in writing. The parties may determine the time when a notification is effective: either upon dispatch by the party giving the notification, or upon delivery to the party to whom the notification is given (paragraphs 18 to 21). The parties may wish to specify in their contract the legal consequences of a failure to notify (paragraph 22).

    The parties may find it useful to define certain key words or concepts which are used in their contract. If a definition is to apply throughout a contract, it may be included in the controlling contract document. In formulating definitions relevant to their contract, the parties may find it useful to consider the definitions given in this chapter, and descriptions of concepts contained in other chapters of this Guide (paragraphs 23 to 26).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    05. Description of works in construction contract and quality guarantee

    It is essential that the contract precisely describe the works or portion of the works to be constructed. The contracting approach chosen by the purchaser, and the procedure adopted for concluding the contract, may determine which party is to prepare the documents describing the construction to be affected (paragraphs 1 and 2). The scope of construction and the technical characteristics of the works may be reflected in the principal contract document, and in specifications, drawings and standards. The parties should clearly identify the descriptive documents which form part of the contract (paragraphs 3 and 4). The technical characteristics of the works, or equipment to be incorporated in the works, may be described in terms of operating capability rather than by reference to designs, materials and workmanship. However, in respect of some items (e.g., materials) technical characteristics may need to be described by reference to appropriate requirements as to the quality (paragraphs 8 and 9).

    Specifications may describe in technical language the scope of the construction to be affected, and the technical characteristics of the equipment and materials to be incorporated in the works (paragraph 10). Specifications may have general and special provisions (paragraphs 11 and 12). The character of specifications may differ in respect of various elements of the construction (paragraph 13).

    The technical characteristics of certain aspects of the construction may be defined by reference to standards. The specified standards should be internationally accepted and widely used. The standards to be applied should be clearly identified in the contract (paragraphs 14 to 16).

    Drawings show in diagrammatic form the various component parts of the works. In some cases, the purchaser supplies basic drawings, with the contractor being obligated to prepare detailed drawings which elaborate the technical ideas already contained in the basic drawings. The contract may provide that the detailed drawings are to be submitted to the purchaser for his approval (paragraphs 17 to 19).

    Specifications and drawings may be inaccurate or insufficient, or inconsistent with one another. It is advisable to determine which party is to bear the costs occasioned by the supply of inaccurate, insufficient or inconsistent specifications and drawings (paragraphs 20 to 22).

    The contract may determine the extent to which a party is to treat as confidential technical documents supplied by the other party, and the consequences of a breach of confidentiality. The contract may provide for the transfer to the purchaser of ownership of technical documents supplied by the contractor, but limit the purposes for which they may be used by the purchaser (paragraphs 23 to 25).

    It is advisable to provide for a quality guarantee under which the contractor assumes liability for defects discovered and notified before the expiry of a guarantee period specified in the contract. The parties may wish to provide for certain limitations to the contractor's liability under the guarantee (paragraphs 26 and 27). Various factors may be taken into account in determining a reasonable length for the guarantee period. It is advisable to determine when the guarantee period commences to run, and the circumstances in which the period may be extended (paragraphs 28 to 31).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    06. Transfer of technology in construction contract

    The purchaser will require a knowledge of the technological processes necessary for production by the works, and require the technical information and skills necessary for its operation and maintenance. The communication to the purchaser of this knowledge, information and skills is often referred to as the transfer of technology (paragraph 1). Differing contractual arrangements can be adopted for the transfer of technology and the performance of the other obligations necessary to construct the works (paragraph 2). The transfer of technology itself may occur in different ways, for example, through the licensing of industrial property (paragraph 3), through the creation of a joint venture between the parties (paragraph 4) or the supply of confidential know-how (paragraph 5). The information and skills necessary for the operation and maintenance of the works may be communicated through the training of the purchaser's personnel or through documentation (paragraph 6).

    The manner in which the technology is to be described may depend on the contractual arrangements which are adopted (paragraph 11). When deciding whether various restrictions are to be imposed on the purchaser's use of the technology, the parties should take into account mandatory legislation which may regulate such restrictions and should attempt to negotiate provisions which are balanced and which impose only those restrictions necessary to protect the legitimate interests of each party (paragraphs 12 to 16).

    The guarantees to be given by the contractor may depend on the contractual arrangements adopted. Under certain arrangements a separate guarantee in respect of the technology may be unnecessary, while under other arrangements a qualified guarantee may be given that the use of the technology will result in the operation of the works in accordance with specified parameters provided certain conditions are satisfied (paragraph 17). The price for technology which is transferred is usually determined as a lump sum or in the form of royalties (paragraphs 18 to 20).

    The parties may wish to include in the contract an undertaking by the contractor that the use of the technology transferred will not result in claims by a third person whose industrial property rights may be infringed by the use (paragraph 21). They may wish to specify the procedure to be followed by them and their rights and obligations in the event of a claim by a third person (paragraph 22).

    The contractor will wish to obligate the purchaser to maintain confidentiality in respect of know-how supplied. The contract should clearly define the extent to which confidentiality is imposed, and provide for situations in which the purchaser may reasonably need to disclose the know-how to third persons (paragraphs 23 and 24). In drafting contract provisions on the training of the purchaser's personnel, issues to be dealt with may include the categories and numbers of trainees, their qualifications, the procedure for selecting the trainees, the places at which they are to receive training, and the duration of the training (paragraphs 27 to 29).

    The training obligations of the contractor should be clearly defined. The contractor may be obligated to engage trainers with qualifications and experience appropriate for the training (paragraph 30). The contract should also fix the payment conditions relating to the training (paragraph 31).

    When technical information and skills are conveyed through documentation, the contract may address such issues as the description of the documents to be supplied, demonstrations needed to explain the documents, and the times at which the documents are to be supplied (paragraphs 33 and 34).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    07. Price and payment conditions in construction contract

    Three main methods of pricing are in common use in works contracts. These are the lump-sum, cost-reimbursable and unit-price methods. Under the lump-sum method, the purchaser is obligated to pay a certain amount which remains constant unless it is adjusted or revised, even though the costs of construction turn out to be different from those anticipated at the time of the conclusion of the contract (paragraphs 2, 6 to 9).

    Under the cost-reimbursable method, the purchaser is obligated to pay all reasonable costs incurred by the contractor in constructing the works, together with an agreed fee (paragraphs 2, 10 to 24). Under this method, the purchaser bears the risk of an increase in the costs of construction over those anticipated at the time of the conclusion of the contract. The risk of an increase in construction costs borne by the purchaser may be limited by agreeing upon a ceiling on the total amount of reimbursable costs or a target cost (paragraphs 13 to 15). An incentive to economy and speed of completion of construction may be created by a target fee (paragraph 23).

    Under the unit-price method, the parties agree on a rate for a unit of construction, and the price is determined by the total units actually used. The risk of cost increases which occur because the actual quantity of units exceeds the quantity estimated at the time of the conclusion of the contract is borne by the purchaser, while the risk of increases in the cost of each unit is borne by the contractor (paragraphs 2, 25 to 27).

    If the purchaser is interested in completion of construction earlier than envisaged in the contract, bonus payments may be agreed in the contract (paragraphs 28 to 30).

    Fluctuations in the exchange rate of the currency in which the price is determined may create certain risks for the parties which might be dealt with in the contract (paragraphs 31 to 37).

    Even if a lump-sum price or unit-price rate is employed, the parties may wish to provide for the price to be adjusted or revised in specific situations (paragraphs 38 to 62). The contract might provide for an adjustment of the price when the construction under the contract is varied, when incorrect data are supplied by the purchaser, when the contractor encounters unforeseeable natural obstacles, and in the case of changes in local regulations and conditions (paragraphs 41 to 46).

    The revision of the price due to a change in construction costs may be affected on the basis of an index clause (paragraphs 49 to 55). Another approach may be to use the documentary proof method. That approach may, however, be appropriate for use only in cases where an index clause cannot be used, and may be limited to portions of the price based on unstable factors (paragraphs 56 and 57).

    Changes in the exchange rate of the price currency in relation to other currencies may be dealt with through a currency clause (paragraphs 58 and 59) or a unit-of-account clause (paragraphs 60 to 62).

    The payment conditions in the contract may provide for specified percentages of the price to be payable at different stages of construction. They may also stipulate modalities of payment and indicate the place of payment (paragraphs 63 to 66). An advance payment by the purchaser may be limited to the portion of the price reasonably needed to cover the contractor's expenses in the initial stages of the construction and protect him against loss in the event of termination of the contract in the initial stages (paragraph 67). Payment of portions of the price during construction may depend upon the progress of construction (paragraphs 68 to 74).

    A certain percentage of the price may be payable after acceptance or, in some cases, take-over, of the works upon proof that construction has been successfully completed (paragraph 75), with the remainder of the price payable only after expiration of the guarantee period (paragraph 76). If a credit is granted by the contractor to the purchaser, the portion of the price covered by the credit may be payable in installments within a certain period of time after take-over or acceptance of the works (paragraphs 77 to 79).

  • UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    08. Prominence Supply of Equipment and Materials

    In structuring provisions in their contract concerning the supply of equipment and materials, the parties might bear in mind that supply of equipment and materials by the contractor under a works contract has features which may differ from those in respect of delivery of goods under a sales contract (paragraph 2).

    The parties may wish to consider whether certain issues connected with the supply of equipment and materials should be settled in their works contract in accordance with a particular trade term as interpreted in the International Rules for the Interpretation of Trade Terms (INCOTERMS). Since trade terms are interpreted in INCOTERMS primarily in the context of sales contracts, some issues in a works contract may need to be resolved in a manner different from that in INCOTERMS (paragraph 3).

    The necessity for and nature of the description in the contract of equipment and materials to be supplied by the contractor may depend upon the contracting approach chosen by the purchaser as well as the extent of the contractor's obligations (paragraphs 6 and 7).

    It is advisable to specify in the contract the time when and the place where equipment and materials are to be supplied. In some cases, the contract might obligate the contractor to supply equipment and materials on a specified date; in other cases, it might obligate him to supply them within a specified period of time. The place of supply may depend upon whether or not the purchaser is to take over the equipment and materials (paragraphs 8 to 10).

    The contract may specify which party is obligated to arrange for the transport of equipment and materials and to bear the costs connected with that transport. It may also deal with such ancillary issues as the packing of the equipment and materials, permits required for the transport, marking of the equipment and materials, and delivery to the purchaser of the documents connected with the transport (paragraphs 11 to 14).

    The contract might specify which party is to arrange customs clearance of the equipment and materials and to pay the customs duties (paragraphs 15 and 16).

    The parties should take into account any legal rules in the country where the works is to be constructed which prohibit the import of certain equipment and materials, and any legal rules which prohibit the export of certain equipment and materials from the contractor's country or another country from which they are to be exported. The contract might allocate responsibility for obtaining necessary import or export licenses. The contract might also provide that its entry into force depends upon the granting of all import and export licenses which are required at the time the contract is entered into, except in respect of such licenses as are not obtainable before the start of construction (paragraphs 17 and 18).

    Equipment and materials supplied by the contractor may need to be taken over by the purchaser in order to store them, or prior to their being incorporated in the works by the purchaser, or by a contractor other than the one who supplied them. The contract might contain provisions concerning the checking by the purchaser of equipment and materials taken over by him, and the giving of notice of a lack of conformity (paragraphs 19 and 20). The contract may establish the responsibilities of the parties in connection with the storage of equipment and materials on site. If the equipment and materials are to be stored by the purchaser, the contract might establish the extent of the purchaser's responsibility for loss of or damage to the equipment or materials during storage (paragraphs 21 to 26).

    If the purchaser assumes the obligation to supply certain equipment and materials needed for the construction of the works by the contractor, it is advisable for the contract to specify the quantity and quality of the equipment and materials to be supplied, as well as the time when they are to be supplied. In addition, the contract might obligate the contractor to inspect the equipment and materials promptly after they have been supplied by the purchaser, and require notice to be given to the purchaser of any lack of conformity of the equipment and materials (paragraphs 27 to 29).

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    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    09. Сonstruction on site

    Construction on site as discussed in this chapter covers civil engineering, building and the installation of equipment. It also covers the supply by the contractor of certain construction services relating to installation to be affected by the purchaser or an enterprise engaged by the purchaser. The scope of the construction to be affected will depend on the terms of the particular works contract. Mandatory legal rules in force in the country where the works is to be constructed may require certain standards or procedures to be observed during the construction (paragraphs 1 to 3).

    Some preparatory work is usually needed on the site before construction can commence. The contract may specify the items of preparatory work to be undertaken by each party. The purchaser may be obligated to obtain any authorizations required for the use of the site for construction. The contract may also specify the facilities which will be needed by the contractor's personnel during the construction, and determine how those facilities are to be provided (paragraphs 6 to 9).

    The contract may obligate the contractor to equip himself with the construction machinery and tools that he needs for the construction. If the purchaser is to supply some of the construction machinery and tools, the contract may determine the rights and obligations of the parties in regard to the supply. The purchaser may be obligated to assist the contractor in obtaining authorizations for the import of the construction machinery and tools into the country where the works is to be constructed (paragraphs 11 and 12).

    The contract should set forth the dates when the construction is to be commenced and completed by the contractor, and also determine whether completion prior to the date set for completion is permissible (paragraphs 14 to 17).

    It is advisable for the contract to contain a time-schedule which establishes the sequential order in which construction is to take place. In designing the time-schedule, the parties may wish to consider using the "critical path method". The time-schedule may establish obligatory and non-obligatory milestone dates for the completion of portions of the construction (paragraphs 18 to 23).

    The date for completion of construction may need to be changed in certain circumstances. The contract may establish a mechanism for making the change if those circumstances occur (paragraphs 24 and 25).

    If the purchaser undertakes the installation of equipment, the contractor may be obligated to supervise the installation. The contract may specify the rights and obligations of the parties in relation to the supervision. Where supervision by the contractor is not needed, the contractor may be obligated to give advice on installation, if so requested by the purchaser (paragraphs 27 to 30).

    Each party will need access to the site for certain purposes. The contract may define the access to be granted, and include provisions regulating access (paragraphs 31 and 32).

    In cases where the purchaser is to construct a portion of the works, he may sometimes find it advantageous to require the contractor to purchase on his behalf some of the equipment and materials needed for the construction (paragraphs 33 and 34). The contract may obligate the contractor to clear the site periodically, and to leave it in a clean and workmanlike condition after the completion of construction (paragraph 36).

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    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    10. Consulting engineer in construction contract

    A consulting engineer as dealt with in this chapter is an engineer engaged by the purchaser to render advice and technical expertise to the purchaser, to take certain actions under the works contract on behalf of the purchaser, or to exercise certain independent functions under the contract (paragraphs 1 to 3). It is advisable for the works contract to set forth clearly the authority and functions of the consulting engineer to the extent that they affect the rights and obligations of the contractor (paragraph 4). The contract need not authorize or regulate the rendering by the consulting engineer of advice and technical expertise to the purchaser (paragraphs 5 and 6). It is advisable, however, for the contract to set forth any authority of the consulting engineer to act on behalf of the purchaser, including any limitations on such authority (paragraphs 7 and 8).

    In some works contracts, the parties may wish to provide for a consulting engineer to exercise certain functions independently, rather than for or on behalf of the purchaser (paragraphs 9 to 12 and 16). Such independent functions may be limited to matters of a technical nature, and may include, for example, resolving on site technical questions arising during the course of construction, resolving discrepancies, errors or omissions in the drawings or specifications, interpreting the technical provisions of the contract, and certifying the existence of certain facts giving rise to rights and obligations under the contract (paragraphs 13 and 14). The parties may wish to consider whether the consulting engineer should be authorized to decide disputes between the parties (paragraph 15).

    It is desirable for the contract to establish the extent to which an act of the consulting engineer pursuant to an independent function is to be considered binding on the parties. This may depend upon whether the act relates to the resolution of routine problems and questions, or is in connection with the settlement of a dispute between the parties (paragraphs 17 to 19).

    If the consulting engineer is only to render advice and technical expertise to the purchaser, or to act on behalf of the purchaser, he might be selected by the purchaser alone. However, if he is to exercise independent functions, the contractor may wish to have the right to participate in the selection. It is desirable for the contract to establish procedures relating to the selection and replacement of the consulting engineer (paragraphs 20 to 26). It may be desirable for the parties to deal with the question of delegation by the consulting engineer of his authority, if they are able to do so under the applicable law (paragraphs 27 and 28).

    The contract might obligate the contractor to provide to the consulting engineer such information or grant access to the site, places of manufacture and the completed works to the same extent that he must provide the information or grant access to the purchaser under the works contract (paragraph 29).

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    11. Subcontracting in construction agreements

    The term "subcontracting" as used in this Guide refers to the engagement by the contractor of a third person to perform certain of the contractor's obligations under the works contract. It is desirable for the contract to contain provisions dealing with the permissible scope of subcontracting, the selection of subcontractors and other aspects of subcontracting. It is also desirable for the contract to specify the obligations of the contractor which are to be subject to those provisions (paragraphs 1 to 4). Under many legal systems, no legal relationship exists between the purchaser and the subcontractor. It may be desirable for the works contract to deal with certain consequences which arise from this fact (paragraphs 5 and 6).

    In particular cases, the contract might prohibit the contractor from subcontracting the performance of some, or all, of his obligations (paragraphs 8 and 9).

    With regard to the selection of subcontractors, the parties might consider two basic approaches: the selection of subcontractors by the contractor alone (paragraph 10), and participation of the purchaser in the selection of subcontractors (paragraphs 11 to 26).

    If possible, it is desirable for the parties to agree upon the subcontractors prior to entering into the works contract. The names of the subcontractors may be specified in the contract, in order to avoid disputes as to the choice of subcontractors. Alternatively, the parties might agree upon a list of acceptable potential subcontractors, from which the subcontractor would be selected by the contractor (paragraphs 13 and 14).

    If the contract provides for the subcontractors to be selected with the participation of the purchaser after the contract had been entered into (paragraph 15), the contract might entitle the purchaser to raise reasonable objections to a subcontractor proposed by the contractor (paragraphs 16 to 19), or obligate the contractor to engage as a subcontractor a firm nominated by the purchaser, subject to the right of the contractor to object to the firm on specified grounds (paragraphs 20 to 26). The nomination system should be used with caution, and with a full understanding of the procedures involved, as well as of the contractual provisions and their consequences (paragraph 23). In either case, it is advisable for the parties to agree upon an expeditious procedure for dealing with disputes between themselves concerning the engagement of a subcontractor (paragraphs 17 and 18, and 26, respectively).

    The parties may wish to provide that the engagement by the contractor of a subcontractor to perform any obligation of the contractor under the works contract does not diminish or eliminate the liability of the contractor for a failure to perform that obligation (paragraph 27). The contract might also require the contractor to indemnify the purchaser against losses resulting from damage caused by the subcontractor to property of the purchaser, or resulting from liabilities incurred by the purchaser towards third persons as a result of acts or omissions of the subcontractor, to the same extent that the contractor would be liable to the purchaser had those losses resulted from an act or omission of the contractor himself. Alternatively, the contract might leave those issues to be resolved by the applicable law (paragraph 28).

    In some situations, the purchaser might wish the subcontractor to undertake certain obligations towards him, and might wish to be able to claim directly against the subcontractor for a failure to perform those obligations. The parties may wish to consider providing in the works contract a mechanism to make this possible (paragraphs 29 to 31).

    The parties may consider it desirable for the works contract to authorize the purchaser to pay a subcontractor directly and to recover from the contractor the sums paid or otherwise be credited for those payments (paragraphs 32 to 34), and to provide for co-operation and communication between the purchaser and a subcontractor (paragraphs 35 and 36).

    It is desirable for the provisions of the works contract and of the subcontract to be compatible (paragraph 37).

     

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    12. Inspections and tests during manufacture and construction

    The parties may wish to specify in the contract the requirements and procedures for inspections and tests during manufacture and construction. The purpose of inspecting and testing during manufacture and construction may be to satisfy the purchaser that manufacture and construction are proceeding in accordance with the agreed time-schedule and in accordance with the contract (paragraph 1).

    In drafting contractual provisions on inspecting and testing during manufacture and construction, it is advisable to take into account municipal legal regulations prescribing inspections and tests in the countries where the works is to be constructed and where equipment or materials are to be manufactured (paragraph 3). Inspections and tests may be conducted by an independent institution (paragraphs 2, 6 and 19).

    It is advisable to describe the character of the inspections and tests to be conducted during manufacture (paragraph 8). The contract may provide for the purchaser to have access to places where inspections and tests are to be conducted, and specify the facilities to be given to the purchaser for the purposes of inspecting and testing (paragraphs 10 and 11). While the time for conducting the tests may be fixed by the contractor, the purchaser should be notified in advance of that time (paragraphs 12 to 14).

    Additional or modified tests not specified in the contract may be required by legal rules issued in the purchaser's country, or may be desired by the purchaser even if not so required. The contract should determine the allocation of the costs of conducting those tests (paragraph 15).

    The contract should determine the consequences if tests conducted during manufacture and construction are unsuccessful (paragraph 16) and provide for the issue of test reports and certificates (paragraphs 17 to 19).

    If certain payments are to made upon shipment of equipment and materials (chapter VII, "Price and payment conditions", paragraph 70), the contract might provide for inspection by the purchaser upon shipment. Inspection upon shipment may be also advisable if the risk of loss of or damage to equipment and materials (chapter XIV, "Passing of risk") is to pass to the purchaser upon shipment (paragraphs 21 and 22). The contract may require inspection of equipment and materials on their arrival on the site if they are to be taken over by the purchaser at that time (paragraph 23).

    The contract might entitle the purchaser to inspect how the construction on the site proceeds, or might require specified tests to be conducted during the construction by the contractor. Issues arising in connection with inspections and tests during construction might be settled in a manner analogous to the manner in which issues arising in connection with inspections and tests during manufacture are settled (paragraphs 24 and 25). Inspection by the purchaser may be facilitated if records are maintained by the contractor of the construction as it proceeds (paragraph 26).

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    13. Completion, take-over and acceptance

    It is advisable that the contract clearly specify when completion, take-over and acceptance are to occur, and their legal consequences. Completion of construction will normally occur prior to take-over and acceptance (paragraphs 1 and 2). The contractor may be obligated to prove completion of construction through the conduct of successful completion tests. The contract may describe the tests that are required. The contract may require the conduct of the tests within a specified period after notification of completion to the purchaser. If the tests are unsuccessful, the contractor may be obligated to repeat them. The contract may require the tests to be conducted in the presence of both parties (paragraphs 4 to 8).

    The contract may allocate the costs of tests between the parties. The contract may require the results of completion tests to be reflected in a report to be signed by both parties. The contract may determine the date when construction is considered to be complete if completion tests are successful (paragraphs 9 to 13).

    The sequence in which take-over, performance tests and acceptance are to occur may depend on the contracting approach chosen by the parties, and on whether the parties have provided for a trial operation period. It is advisable for the contract to determine which party is to provide the items needed to operate the works during the trial operation period (paragraphs 14 to 20). The contract should specify when the purchaser is obligated to take over the works. The parties may be obligated to prepare a take-over statement which describes the construction of the works at the date of take-over. It is advisable for the contract to determine the legal consequences of take-over (paragraphs 21 to 23).

    Performance tests serve to demonstrate that the works meets the technical characteristics specified in the contract. The contract may provide that acceptance can occur after performance tests have been conducted. The contract may obligate the contractor to conduct performance tests within a specified period of time after the expiry of the trial operation period, or, if the contract does not provide for a trial operation period, after completion of construction. It is desirable that the contract describe the tests to be conducted. The results of the tests may be reflected in a report to be signed by both parties (paragraphs 24 to 28). The contract may obligate the purchaser to accept the works within a specified period after the conduct of successful performance tests, and obligate the parties to prepare an acceptance statement, to be signed by both parties. The statement may list the defects in the works discovered during the performance tests, and set forth a time-schedule for their cure (paragraphs 29 and 30).

    The contract may provide that, if the contractor is prevented from conducting performance tests due to a failure by the purchaser to perform an obligation, acceptance is deemed to occur. Where performance tests can be conducted independently in respect of portions of the works, those portions may be accepted separately (paragraphs 32 and 33).

    It is advisable for the contract to determine the legal consequences of acceptance, in particular if the contract provides for provisional acceptance (paragraphs 34 to 36).

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    14. Passing of risk

    Loss or damage may be caused to equipment and materials to be incorporated in the works and to the works before or after completion, as well as to tools and construction machinery to be used by the contractor for effecting the construction. This chapter deals with loss or damage which may be caused by accidental events or by the acts of third persons for whom neither party is responsible, and the issue of allocating the risk of such loss or damage between the parties (paragraphs 1 to 4).

    In determining how the risk of loss or damage is to be allocated between the parties, several factors need to be considered and balanced (paragraph 5). The parties may sometimes wish to exclude certain specified events from the risks to be borne by the contractor, and to allocate the risk of loss or damage from that event to the purchaser (paragraph 6).

    Mandatory rules in many legal systems provide that, after equipment and materials are incorporated in the works, they lose their separate identity, and the party bearing the risk in respect of the works will also bear the risk in respect of the incorporated equipment and materials. The time at which equipment and materials are considered to be incorporated in the works will be determined by criteria specified in the applicable law (paragraphs 7 and 8).

    The parties may wish to determine the allocation of risk in respect of equipment and materials supplied by the contractor, and the time at which the risk is to pass from one party to the other. This may depend, in particular, on which party is to be in physical possession of the equipment and materials and the need to avoid a multiple passing of risk (paragraphs 9 to 15). Equipment which is supplied by the contractor is sometimes not intended to be incorporated in the works. If they are able to do so under the applicable legal rules, the parties may wish to allocate the risk in respect of such equipment on the basis of which party is to be in physical possession of the equipment prior to the take-over of the works (paragraphs 16 and 17).

    In respect of equipment and materials supplied by the purchaser for incorporation in the works, the parties may wish to determine the allocation of risk on the basis of factors similar to those which would be relevant to an allocation of risk in respect of equipment and materials supplied by the contractor (paragraphs 18 and 19).

    In respect of the works during construction and the completed works, where only one contractor is engaged to construct the entire works it is advisable to provide that the contractor is to bear the risk until take-over or acceptance by the purchaser (paragraphs 20 and 21). Where several contractors participate in the construction in succession, the contract may provide that the risk is to pass to each contractor at the time the uncompleted works is taken over by him, and pass to the purchaser at the time the works is taken over by the purchaser (paragraph 22).

    Where the contractor bears the risk of loss or damage, the contract may require him to cure with all possible speed and at his own expense any loss or damage which occurs. Where the purchaser bears the risk in respect of equipment and materials supplied by the contractor, the contract may obligate him to pay the entire price for equipment and materials which are lost or damaged (paragraph 23).

    It is advisable for the contractor to bear the risk in respect of the contractor's tools and construction machinery brought to the site for effecting the construction (paragraph 30).

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    15. Transfer of ownership of property

    The issue of whether various types of property involved in the construction of an industrial works are owned by the contractor or the purchaser may be important in connection with questions of insurance, taxation, and liability to third persons arising from the property or its use. The issue is also important because the property may be seized by creditors of its owner and is subject to bankruptcy proceedings against him (paragraph 1). This Guide deals with the transfer of the ownership of property as an issue distinct from the passing of risk of loss of or damage to that property (paragraph 2).

    The transfer of ownership of equipment and materials which are to be incorporated in the works is often governed by mandatory rules of the legal system where the property is situated (paragraph 3). Many legal systems contain a mandatory rule that all things affixed to land become subject to the ownership of the landowner (paragraph 4). Even if the applicable law permits the parties to regulate through contract provisions the transfer of ownership of property from one party to the other, they may need to include such provisions only where the applicable law does not regulate the transfer in a satisfactory manner (paragraph 5). Contractual provisions allocating the ownership of equipment and materials to the party who does not own the works may cease to have effect upon the incorporation of the equipment materials in the works (paragraph 6).

    In regard to the transfer of ownership of equipment and materials supplied by the contractor, it may be desirable that ownership does not remain with him after the purchaser has paid a substantial portion of the price for them. In regard to the transfer of equipment and materials supplied by the purchaser, it may be desirable that the ownership of the equipment and materials is not to pass to the contractor unless he pays for them before their incorporation (paragraph 7).

    It may be desirable for ownership of the works during construction to be allocated in certain circumstances to the purchaser, for example when he pays a substantial portion of the price in the form of progress payments during construction. In other circumstances, an allocation to the contractor may be desirable, for example if credit has been given by the contractor to the purchaser in respect of the payment of the price (paragraph 8).

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    16. Insurance

    It is desirable for the parties, and particularly for the purchaser, to obtain advice regarding insurance from specialists in the field of insurance of industrial works projects. The works contract need normally deal only with those types of insurance which it is desirable for a party expressly to be obligated to provide (paragraphs 1 to 4).

    It is advisable for the contract to require property insurance and liability insurance, and to specify the risks which are to be insured against, the party who is obligated to obtain the insurance, the parties and other entities who are to be named as insured parties, the minimum amount of insurance, the applicable deductible or excess, and the period of time to be covered by the insurance (paragraphs 5 to 15).

    It is advisable for the contract to require property insurance against loss of or damage to the works during construction, the completed works, temporary structures and structures ancillary to the works (paragraphs 16 to 23), and equipment and materials to be incorporated in the works (paragraphs 24 to 26).

    Where the contractor is to bear the risk of loss of or damage to the entire works during construction and after completion, it may be desirable for the contract to obligate the contractor to obtain property insurance covering the entire works and to keep it in force. Where several contractors are engaged to construct the works, and no single contractor bears the risk of loss of or damage to the entire works, the parties may wish to consider whether it is desirable for each contractor to obtain insurance covering the portion of the works and structures covered by his construction (paragraph 18). It is normally desirable for both the contractor and the purchaser to be named as insured parties (paragraph 19).

    Different approaches may be adopted with respect to the risks required by the contract to be covered by property insurance (paragraphs 20 and 21). The parties should consider the nature of the losses to be compensated by the insurance and the amount of insurance to be required (paragraphs 22 and 23).

    With respect to insurance covering equipment and materials to be incorporated in the works, the contract might provide for those items to be insured under a cargo policy from the point of shipment to delivery at the site, and after delivery by property insurance as previously discussed. Alternatively, it may be desirable in some cases for a single insurance policy to insure them for the entire period from the time of shipment to the time of incorporation in the works (paragraphs 24 to 26).

    In some cases, it may be desirable for the contractor to be obligated to obtain insurance covering machinery and tools used by him for the construction, including hired machinery and tools (paragraph 27).

    It is desirable for the contract to obligate the contractor to insure against his extra-contractual liability for loss, damage, or injury caused in connection with his performance of the contract, including acts or omissions of his employees, subcontractors and suppliers, as well as his liability under indemnities which he assumes under the contract (paragraphs 28 to 37).

    It may be desirable for the contract to require the contractor also to provide specific types of liability insurance, such as products liability insurance (paragraph 29), professional indemnity insurance (paragraph 30), insurance against liabilities arising from the operation of vehicles (paragraph 31), and insurance to compensate employees for work-related injuries (paragraphs 32 to 35). The contract might require liability insurance to be in effect prior to the time when he or any subcontractor commences construction on the site and might cover loss, damage or injury occurring throughout the construction phase and the guarantee period (paragraph 36).

    It is advisable for the contract to obligate the contractor to produce to the purchaser specified types of proof that insurance which the contractor is obligated to obtain is in effect, or instruct his insurer to provide such proof directly to the purchaser. Similar obligations might be imposed upon the purchaser in respect of insurance required to be obtained by him (paragraph 38). The parties may wish to consider provisions to deal with the situation where the obligated party fails to obtain or keep in force any insurance which he is required to provide (paragraphs 39 to 41).

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    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    17. Security for performance

    Each party to a works contract may seek security against failure of performance by the other. A security in favor of the purchaser may be in the form of a guarantee, while that in favor of the contractor may be in the form of a guarantee or an irrevocable letter of credit in his favor (paragraph 1). Security interests in property are not a significant form of security for performance under works contracts (paragraph 2).

    It is advisable for the works contract to set forth the forms of security to be furnished by each party, and the consequences of a failure to do so (paragraph 4). The law applicable to the security may contain mandatory provisions regulating certain aspects of the security (e.g., form and period of validity) (paragraph 6).

    A guarantee for performance by the contractor may provide that, if specified failures to perform by the contractor occur, a third person is to be responsible for those failures in the manner described in the guarantee (paragraph 7). Guarantees of this type are used for the following purposes: that a contractor who has submitted a tender will not withdraw his tender before the date specified in the tender for awarding the contract (tender guarantees: paragraph 9); as security for proper performance under the contract (performance guarantees: paragraphs 9 to 12) and as security that an advance payment made by the purchaser to the contractor will be repaid to the purchaser (repayment guarantees: paragraphs 9 and 13). Performance guarantees may take the form of a monetary performance guarantee or a performance bond (paragraph 11).

    The purchaser may wish to consider identifying in the invitation to tender the guarantors whom he is willing to accept. He may also wish to consider whether to specify that the guarantors must be institutions from his own country. There are advantages and disadvantages to these courses of action (paragraphs 14 to 16).

    The terms of a guarantee may make a claim under the guarantee independent or accessory (paragraphs 17 to 19). Independent guarantees and accessory guarantees have their respective advantages and disadvantages (paragraphs 20 to 23). The parties may wish to provide that where a monetary performance guarantee is to be furnished, it is to be neither completely accessory nor a pure first demand guarantee (paragraph 24).

    The guarantee may be furnished at the time the contract is entered into, or within a specified period of time after it is entered into (paragraph 25). The extent of liability under a guarantee is normally limited to a stated amount (paragraphs 26 to 28). The parties may wish to consider the effect of a variation of the scope of obligations under the works contract, or a termination of the contract, on the obligations of the guarantor, and to deal with this issue in a suitable manner (paragraphs 30 to 34). They may also wish to consider the possible duration of the guarantee, and difficulties which may arise if the guarantee has a fixed expiry date (paragraphs 35 to 39).

    As security for the payment of the price, the purchaser may be required to arrange for a guarantee (paragraph 40). Alternatively, the purchaser may be required to arrange for a letter of credit to be opened by a bank in favor of the contractor, the bank undertaking to effect payment up to a stated amount within a prescribed time limit against the presentation by the contractor of stipulated documents (paragraph 41). The contractor may wish to determine in the contract the bank which is to open the letter of credit (paragraph 42). It is important that the payment terms under the letter of credit and the payment conditions under the works contract be harmonized (paragraph 43). It is advisable for the parties to agree on the documents against the presentation of which the bank is to make payment (paragraph 44). It is also advisable for the parties to consider the period for which the letter of credit is to remain open (paragraph 45).

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    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    18. Delay, defects and other failures to perform

    This chapter deals with certain remedies to which the purchaser may be entitled for delayed or defective performance by the contractor. It also deals with the remedies to which the contractor may be entitled in respect of the following failures to perform by the purchaser: delay in payment of the price or in providing security for payment of the price; delay in taking over or accepting the works; and failure to supply design, equipment or materials for construction. It also deals with the remedies available to both parties for delay in payment of sums other than the price, or the failure to perform auxiliary obligations. It is advisable that the contract specify the remedies for the failures to perform mentioned above. In drafting contractual provisions on remedies, account should be taken of the remedies provided by the law applicable to the contract (paragraphs 1, 2, 6 and 7).

    Delay in performance occurs when a party performs his contractual obligations later than the time stipulated in the contract for their performance, or does not perform them at all. Defective performance occurs when a party fails to comply with those contract terms which describe the technical characteristics of the construction to be affected (paragraph 4).

    Because of the complex and long-term character of the performance undertaken by the contractor under a works contract, the purchaser needs a detailed system of remedies. The system of remedies set forth in this chapter emphasizes two elements: the initial remedy usually given to the purchaser is to require the completion or cure by the contractor of performance which is delayed or defective; and the remedy of termination is given as one of last resort (paragraphs 9 to 12).

    It is sometimes recommended that the purchaser be given a choice of alternative remedies upon certain failures to perform by the contractor. The contract may provide that the purchaser may not alter a choice of remedy he has made unless the contractor consents to the alteration. When the contractor is required to cure defects, it may be provided that he is to have freedom as to the manner in which the cure is to be affected (paragraphs 14 and 15).

    In view of the detailed character of the system of remedies given to the purchaser, this chapter sets out in paragraph 50 a summary of those remedies.

    The purchaser may delay in payment of the price or in providing security for payment of the price (paragraph 52). The parties may wish to provide for the payment of interest if the purchaser delays in payment of the price (paragraphs 53 to 56). Where the purchaser is in delay in paying a specified percentage of the price, or in furnishing security for payment of a specified percentage of the price, the contract may entitle the contractor to grant the purchaser an additional period of time to perform, and if the purchaser fails to perform within the additional period, to suspend the contract and, if the failure continues for a specified period after the suspension, the contractor may be entitled to terminate the contract. Alternatively, the contract may entitle the contractor to immediate termination of the contract, if the purchaser fails to pay or furnish security within the additional period (paragraphs 57 and 58). The contract may provide that acceptance of the works by the purchaser is deemed to occur in certain circumstances. In cases where this approach is not feasible in regard to acceptance, and in all cases of take-over, the contract may provide that, where the purchaser is in delay in accepting or taking over, the contractor is entitled to require the purchaser to accept or take over within an additional period. If he fails to accept or take over o within the additional period, the contract may provide that the con sequences of acceptance or take-over arise as from the date when a written notice stating that the consequences are to arise is delivered to the purchaser (paragraphs 59 to 61).

    The contract may specify the remedies to which the contractor may be : entitled if the purchaser fails to supply a design, equipment or materials which he is obligated to supply, e.g., to require the purchaser to supply the design, equipment or materials within an additional period, and if the } purchaser fails to do so, to terminate the contract (paragraphs 62 and 63). The contract may specify the remedies to which a party may be entitled if the other party is in delay in payment of a sum other than the price, or fails to perform an auxiliary obligation (paragraphs 64 to 66).

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    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    19. Liquidated damages and penalty clauses

    Liquidated damages clauses and penalty clauses provide that, upon a failure of performance by one party, the aggrieved party is entitled to an agreed sum of money from the party failing to perform. In works contracts, these clauses are usually included in respect of failures of performance by the contractor (paragraph 1).

    The clauses have certain advantages. Since the agreed sum is recoverable without the need to prove that losses have been suffered, the expenses and uncertainty associated with the proof of losses are removed (paragraph 2). The sum may also serve as the limit to the liability of the contractor, who will be assisted by knowing the maximum liability to which he is likely to be exposed (paragraph 3).

    Many legal systems have rules, which are sometimes mandatory, regulating liquidated damages clauses and penalty clauses. Under some legal systems, only clauses under which the agreed sum serves as compensation are valid. Under other legal systems, clauses under which the agreed sum serves as compensation, or is intended to stimulate performance, or has both those functions, are valid (paragraph 5). The parties may wish to provide that if the failure to perform is caused by an exempting impediment, the agreed sum is not due (paragraph 6).

    The law applicable to the contract often regulates the relationship between recovery of the agreed sum and enforcement of the performance of obligations. That law also often regulates the relationship between the recovery of the agreed sum and the recovery of damages. The parties may, however, be permitted by the applicable law to regulate these relationships to some extent, and the parties may wish to do so to the extent permitted by the applicable law (paragraphs 7 and 8).

    It is in the interests of both parties to delimit clearly the failure to perform upon which the agreed sum is payable (paragraph 9). In quantifying the agreed sum, if the applicable law so permits, the purchaser may find it beneficial to provide for an agreed sum in an amount which both provides reasonable compensation to the purchaser and puts a moderate pressure on the contractor to perform. Excessive sums should be avoided; under many legal systems those sums would be set aside or reduced (paragraphs 10 and 11).

    The agreed sum to be paid is often fixed by way of increments, and a limit may be placed on the amount to which the increments can escalate. A limit may have advantages and disadvantages to the purchaser (paragraph 12). The parties may wish to consider whether the limit is to apply in all cases (paragraph 13), and the remedies which the purchaser might have after the limit is reached (paragraph 14).

    In order to facilitate recovery of the agreed sum, the contract may authorize the purchaser to deduct the agreed sum from funds of the contractor in the hands of the purchaser (paragraph 15). The contract may also provide for a guarantee to be given by a financial institution in respect of the agreed sum (paragraph 16).

    When an agreed sum is stipulated for delay in performance, the date fixed for performance may become inapplicable in certain circumstances, and this may create difficulties in the operation of liquidated damages clauses and penalty clauses. The parties may wish to include in the contract a mechanism for determining a new date for performance, and provide that delay is to be measured by reference to the new date (paragraph 17).

    The parties may wish to consider the circumstances in which the payment of an agreed sum is to be provided for delay by the contractor in completing a portion of the works. The quantification of the agreed sum will depend on those circumstances (paragraphs 18 and 19).

    Where the payment of an agreed sum is stipulated by way of increments with a limit on the amount recoverable, the parties should determine the availability of the remedies of termination, damages and the recovery of the agreed sum, and also the relationships between those remedies (paragraph 21).

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    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    20. Damages

    The law applicable to the contract will determine the conditions under which, and the extent to which, a party who fails to perform a contractual obligation is liable to pay damages. The legal rules on some issues relating to liability may be mandatory, while on other issues the legal rules may be capable of modification by the parties. Most legal systems, however, permit the parties to settle through contract provisions issues relating to the extent to which damages may be recoverable (paragraph 1).

    The parties may wish to leave to the applicable law the determination of the conditions under which, and the extent to which, damages are recoverable from a party who has failed to perform. However, if they adopt this approach, the parties should include in their contract the other remedies recommended in the Guide for a failure to perform only after careful consideration, since these remedies may be inconsistent with the rules governing the recovery of damages under the applicable law (paragraph 2). Alternatively, the parties may provide in the contract that a party who fails to perform an obligation is liable to pay damages. They may also wish to include an exemption clause which would exclude this liability in specified circumstances. They may also wish to determine the extent to which the party who is aggrieved by the failure to perform is to be compensated (paragraph 3). Damages may be distinguished in certain respects from payment of an agreed sum and from interest (paragraph 4). The purchaser may also arrange for security to compensate him in the event of a failure to perform by the contractor, or may take out insurance to obtain financial protection (paragraph 5). Moreover, the contract or the law applicable to the contract may provide that one party is to compensate the other in circumstances where there has been no failure to perform by the party from whom compensation is payable (paragraph 6).

    Different approaches are available to identify the kinds of losses for which an aggrieved party is entitled to compensation (paragraph 7). In respect of compensation for lost profits, different approaches are available to delimit the amount of compensation payable (paragraph 8).

    The contract may exclude the recovery of compensation for losses which the party, failing to perform could not have been reasonably expected to foresee. The contract may specify whether foreseeability is to be determined at the time of entering into the contract, or at the time of the failure to perform. Furthermore, the contract may clarify whether the aspect to be foreseen is the kind or the amount of the losses suffered (paragraphs 9 and 10). The parties may also wish to decide on the mechanism by which losses which are causally remote from the failure to perform are excluded from compensation (paragraphs 11 and 12).

    If benefits or savings are gained by the aggrieved party from a failure to perform, the parties may provide that they are to be deducted from losses resulting from the failure in determining, the amount to be paid as compensation (paragraph 13). The parties may wish to consider whether the contract is to limit the amount of damages recoverable, and, if so, how the limitation is to be determined in the contract (paragraph 14).

    The parties may wish to provide that the aggrieved party is obligated to mitigate his losses. They may provide that if he does not do so, he may not be entitled to compensation for losses which could have been prevented if he had fulfilled his obligation (paragraph 15).

    Defective construction may result in death or personal injury to third persons, or damage to their property. Liability for damages to the third persons in those cases is often determined by mandatory extra-contractual legal rules. The parties may, however, wish to provide for the internal allocation of risks between them in respect of damages paid to third persons (paragraphs 16 to 18).

    The parties may wish to determine in which currency or currencies damages are to be paid (paragraph 19).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    21. Exemption clauses

    During the course of construction, events may occur which impede the performance by a party of his contractual obligations. The present chapter concerns clauses under which a party who fails to perform a contractual obligation due to an impediment is exempted from certain legal consequences of the failure. It would be in the interest of the purchaser if the scope of the exemption clause were limited, both as to the events which constitute exempting impediments and the legal consequences of exempting impediments. The parties may wish to enable both parties to invoke an exemption clause (paragraphs 1 to 4).

    Rules in some legal systems concerning exemption from legal consequences of a failure to perform may lead to results which are incompatible with the circumstances and needs of international trade. The parties may, therefore, wish to include in the contract an exemption clause defining exempting impediments and specifying the legal consequences of those impediments (paragraphs 5 to 7).

    In order to limit the scope of an exemption clause, the parties may wish to provide that a party failing to perform is exempt only from the payment of damages or of an agreed sum to the other party (paragraph 8).

    The parties might also limit the scope of the exemption clause by adopting a restricted definition of exempting impediments. One approach may be to provide only a general definition of exempting impediments (paragraphs 10 to 12). Another approach may be to provide a general definition together with an illustrative or exhaustive list of events to be considered exempting impediments, or a list of events to be considered exempting impediments whether or not they come within the general definition (paragraphs 13 to 16). A third approach may be to provide an exhaustive list of events to be considered exempting impediments without a general definition (paragraph 17). The parties may wish to consider various types of events to be included in a list of exempting impediments (paragraphs 18 to 22).

    The scope of an exemption clause might be further clarified by expressly excluding some events which might otherwise come within the scope of the clause. The parties may wish to consider whether certain acts of a State or of State organs, such as the denial or withdrawal of a license or approval, are to be regarded as exempting impediments (paragraphs 23 and 24).

    The parties may wish to provide in the contract the conditions under which a contractor is exempt when his failure to perform is due to a failure by a third person engaged by him (paragraphs 25 and 26).

    It is desirable for the contract to obligate a party invoking an exempting impediment to give written notice of the impediment to the other party. The contract might provide that a party who fails to give such notice loses his right to invoke the exempting impediment. Alternatively, the contract may provide that the party remains entitled to invoke the exempting impediment, but that he is liable to compensate the other party for losses resulting from the failure. The contract might also require verification of an impediment for it to be relied upon. Further, the parties may wish to provide that, upon notification of an exempting impediment, they are to meet and consider what measures to take in order to prevent or limit the effects of the impediment (paragraphs 27 and 28).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    22. Hardship clauses

    Hardship is a term that is used in the Guide to describe a change in economic, financial, legal, or technological factors which causes serious adverse economic consequences to a contracting party, thereby rendering more difficult the performance of his contractual obligations. A hardship clause usually defines hardship, and provides for renegotiation to adapt the contract to the new situation created by the hardship (paragraph 1). Hardship clauses are to be distinguished from exemption clauses (paragraph 2).

    A hardship clause may be considered to have the advantage that renegotiation under it might avert a disruptive failure of performance by the party affected by the changed circumstances. The clause may also facilitate renegotiation by providing a framework within which it may be conducted (paragraph 3).

    A hardship clause has, however, several disadvantages which may outweigh the advantages described above. The possibility of renegotiation makes the contract to some degree unstable the definition of hardship tends to be imprecise and vague, and the inclusion of the clause may induce the advancement of spurious claims that hardship exists to avoid the performance of obligations (paragraph 4). Furthermore, the purchaser may in particular be disadvantaged because the contractor will potentially have more opportunities to invoke the clause than the purchaser (paragraph 5). The Guide deals with other clauses which may be included in the contract and which may apply when a change of circumstances causes serious adverse economic consequences to a party. The purchaser may wish to consider whether the inclusion of those clauses renders a hardship clause unnecessary (paragraph 6).

    If, despite its disadvantages, the parties wish to include a hardship clause in the contract, it is advisable to draft it so as to reduce the uncertainty it might create as to the obligations of the parties. It may be acceptable for the clause to define hardship, and in addition to include a list of events on one or more of which alone a party can rely to invoke the clause (paragraphs 7 and 12). A restrictive definition of hardship may be adopted under which all required elements must be satisfied before hardship is deemed to occur (paragraphs 8 to 11). The parties may wish to consider the inclusion of other limitations to invoking a hardship clause, since those limitations may reduce the instability introduced into the contract by the clause (paragraph 13).

    The parties may wish to decide whether, in the event of hardship occurring, they are to be obligated only to participate in renegotiations with a view to adapting the contract, or are to be obligated to adapt the contract after renegotiations (paragraph 14).

    The parties may wish to provide procedures for facilitating renegotiation (paragraphs 15 to 17). The contract may also determine the point of time at which a failure to agree on adaptation after renegotiations may be deemed to occur (paragraph 18).

    The parties may wish to facilitate the implementation of a hardship clause by providing guidelines to assist them in reaching a fair adaptation of the contract (paragraph 19). Since the circumstances which had changed and created the hardship may change once more and approximate to their previous condition, thus alleviating the hardship, the contract may provide how the contract is to be re-adapted if circumstances return to their previous condition (paragraph 20).

    The parties may wish to determine the status of the contractual obligations of the parties during renegotiations. Where the parties are obligated only to participate in renegotiations, they may provide that the performance of the obligations of the parties which are alleged to be affected by the hardship is to continue in accordance with the original terms of the contract during the renegotiations (paragraph 21). Where the parties are obligated to adapt the contract after renegotiations, they may provide that the performance of the obligations is to continue both during renegotiations and, if the parties fail to agree on adaptation, during the ensuing dispute settlement proceedings. Alternatively, they may provide that the party invoking the hardship clause is entitled to interrupt the performance of the obligations (paragraph 22).

    Where the contract obligates the parties to adapt the contract after renegotiations, it is advisable for the contract to provide for the consequences of a failure to agree on adaptation (paragraph 23).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    23. Variation clauses

    As used in the Guide, the term "variation" refers to a change in an aspect of the construction of the works from that required under the contract documents. During the course of construction of the works, situations may be encountered which make it necessary or advisable to vary certain aspects of the construction. It is advisable for the contract to contain provisions setting out the circumstances under which a contractor is obligated to implement a variation. In formulating contractual provisions concerning variations, the parties should attempt to strike an appropriate balance among various interests (paragraphs 1 to 4).

    The parties may wish to consider three basic approaches to variations sought by the purchaser. Under the first approach, the contract would obligate the contractor to implement a variation ordered by the purchaser, so long as the variation ordered met certain criteria set forth in the contract. Under the second approach, the contract would obligate the contractor to implement a variation ordered by the purchaser unless he objected to it upon reasonable or specified grounds. Under the third approach, a variation would require the written consent of the contractor. The contract could incorporate one or any combination of these approaches. It would be useful for the contract to contain provisions concerning the settlement of disputes between the parties as to whether the purchaser was entitled to order a variation (paragraphs 5 to 7).

    The parties may, in some cases, consider it appropriate to provide in the contract for reasonable adjustments to be made in the contract price and in the time for completion by the contractor in the event of a variation. In such a case, the contract may contain a mechanism for the contractor to inform the purchaser of the contractor's contentions concerning the impact of the variation on the contract price and time for completion in order to enable the purchaser to consider whether, in view of the likely impact, he wishes to insist upon the variations. Whether or not such a mechanism is contained in the contract, the contract may obligate the parties to attempt to settle between themselves the amounts of the adjustments to be made in accordance with criteria set forth in the contract, and entitle either party to refer for settlement a dispute as to the amount of an adjustment (paragraphs 8 to 11).

    With respect to variations which the contractor is obligated to implement, the parties may wish to consider restricting the scope of such variations (paragraphs 12 and 13). With respect to variations to which the contractor may object, the contract may entitle the contractor to object on reasonable grounds, or may specify particular grounds upon which he may object (paragraph 15). The contract may contain procedures with respect to the ordering and implementation of both of these categories of variations (paragraphs 14 and 16 to 18).

    With respect to variations which require the consent of the contractor, the contract may provide that variations requested by the purchaser must be implemented by the contractor only if he consents to them in writing (paragraph 19). It would be in the interest of the purchaser if variations proposed by the contractor were not to be implemented unless they were agreed to in writing by the purchaser (paragraphs 20 to 22).

    The contract may contain particular provisions dealing with changes in construction in cases of unforeseeable natural obstacles and changes in local regulations (paragraph 23).

    For cases in which a variation is to result in an adjustment of the contract price, it is desirable for the contract to provide that the adjustment is to be by a reasonable amount. It would be useful for the contract to contain guidelines to assist in the determination of what amount of adjustment is reasonable. These guidelines may vary depending upon the type of contract (paragraphs 24 to 32).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    24. Suspension of construction

    This chapter deals only with the suspension of construction and not with the suspension of any other obligations under the contract. As no developed doctrine of suspension exists in most legal systems, the parties may wish to consider the inclusion of a clause in the contract permitting suspension of construction, defining the circumstances in which suspension may be invoked and describing its legal effects (paragraphs 1 and 2).

    The parties may agree to permit the purchaser to order the suspension of construction only upon grounds specified in the contract (paragraph 3). Alternatively, the parties may consider including a provision enabling the purchaser to order suspension of the construction of works for his convenience (paragraph 4).

    The contract may give the contractor the right to suspend construction in two specific circumstances. The contractor may be entitled to suspend construction firstly as an alternative to the more drastic remedy of termination in cases where the failure to perform an obligation by the purchaser is serious enough to justify such termination, and secondly when a failure of performance on the part of the purchaser makes it unreasonably difficult for the contractor to proceed with the construction (paragraphs 5 to 7).

    The contract may settle the procedure to be adopted for suspension. Thus, the suspending party may be required to deliver a written notice of suspension to the other party. The purchaser may be required to deliver a written notice of suspension to the contractor specifying the effective date of the suspension and the construction activities to be suspended (paragraph 8). Furthermore, the parties may wish to consider whether the exercise of the right to suspend by the contractor for failure of performance by the purchaser should be conditioned upon a written notice being given to the purchaser requiring him to perform within a specified time and what exceptions there are to be to this (paragraph 9). The contract may also provide a method of determining what the duration of the suspension is to be (paragraphs 10 and 11).

    The contract may provide that when suspension of construction has been ordered, all the construction activities to which the order relates are to cease, but that the construction of other parts of the works is to continue (paragraph 12). The contractor may be entitled by the contract to an extension of time to complete the construction in order to make up for the period of suspension and the time required to remobilize personnel and equipment (paragraph 13).

    The contract may provide for the application of its terms to the resumed construction following the period of suspension. However, other contract terms, in addition to those directly affected by the suspension, may need to be harmonized with the suspension clause (paragraph 14).

    Suspension may have a considerably disruptive effect on the construction of the works by the contractor and may put into question the financial viability of the contract to the contractor. Accordingly, the contract may make the purchaser accountable to the contractor for any losses suffered by him. It may be difficult after suspension has occurred to determine the losses to be compensated by the purchaser. It may therefore be desirable for the contract to list the losses to be compensated (paragraphs 15 and 16).

    In certain circumstances the contract might permit the contractor to terminate the contract rather than to continue the suspension (paragraph 17). The contract may obligate the contractor to resume work only after a reasonable period of time has elapsed since the ending of the suspension (paragraph 18).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    25. Termination of contract

    It is desirable for the contract to include a termination clause in order to provide for an orderly and equitable procedure in the event of circumstances which make it prudent or necessary to terminate the contract. Before the contract is terminated, it would be in the interests of both parties to resort to other measures or remedies provided by the contract in order to deal with the circumstances. In addition, it may, in many cases, be desirable for the contract to require that a party wishing to terminate the contract notify the other party that there exists a situation which justifies termination and to allow the other party a period of time to overcome or cure the situation before entitling the first party to terminate (the two-notice system). In drafting a termination clause, the parties should take account of any mandatory legal rules on the subject of the law applicable to the contract, and should be aware of any non-mandatory rules (paragraphs 1 to 6).

    The parties may wish to provide for termination of the contract in respect of obligations which have not yet been performed, as well as in respect of obligations which have been performed defectively (paragraph 7).

    The contract might entitle the purchaser to terminate in certain situations involving a failure of the contractor to perform, a violation by the contractor of restrictions on the transfer of the contract and, possibly, a violation of restrictions on subcontracting (paragraphs 8 to 10).

    It may be advisable for the contract to entitle the purchaser to terminate the contract in the event that the contractor is adjudicated bankrupt. The parties may wish to consider whether the institution of bankruptcy proceedings in respect of the contractor should entitle the purchaser to terminate the contract (paragraphs 11 to 14). The parties may also wish to consider whether the purchaser should be entitled to terminate the contract in the event of proceedings similar or related to bankruptcy proceedings in respect of the contractor, or in the event of bankruptcy or similar or related proceedings in respect of a guarantor (paragraphs IS and 16).

    The parties may wish to consider whether the purchaser should be entitled to terminate the contract for his convenience (paragraphs 17 and 18).

    The contract might entitle the contractor to terminate in certain situations involving a failure of the purchaser to perform, the purchaser's interference with or obstruction of the contractor's work, and bankruptcy or similar or related proceedings in respect of the purchaser (paragraphs 19 to 21).

    If the performance of obligations under the contract is prevented by an exempting impediment, the parties may wish to entitle either party to terminate if the impediment persists for a specified amount of time, or if the cumulative duration of two or more impediments exceeds a specified amount of time (paragraph 22).

    The contract may specify the rights and obligations of the parties upon termination. It would be desirable for the contract to provide that, upon termination by either party, the contractor must cease construction and vacate the site. The contract might give the purchaser the option to use the contractor's construction equipment and tools, perhaps upon payment of a reasonable rental, and to purchase from the contractor equipment and materials to be incorporated in the works (paragraphs 23 to 25). In the event of termination, the contract may obligate the purchaser to take over the portions of the works which have already been constructed and which are not subject to the termination. However, an exception may be made in some cases where the contractor terminates due to failure by the purchaser to perform (paragraph 26).

    The parties may wish to consider obligating the contractor to transfer to the purchaser his contracts with subcontractors and suppliers, in cases where the contract is terminated for grounds attributable to the contractor. It may be desirable for the contract expressly to authorize the purchaser to make payment of sums owed by the contractor directly to subcontractors and suppliers, and entitle the purchaser to recover those payments from the contractor (paragraphs 27 and 28).

    In some cases, where the contract is terminated by the purchaser for reasons other than those attributable to the purchaser, the contract may obligate the contractor to deliver to the purchaser such drawings, descriptive documents and similar items relating to the works as are in his possession, and provide for the production of items which have not yet been produced and delivery of them to the purchaser (paragraph 29).

    The contract may specify the payments which are to be made by one party to the other in the event of termination. Whether payments are to be made, and the extent of the payments, may depend on the cause for the termination (paragraphs 30 to 35). The contract may specify those provisions which are to survive the termination and continue to bind the parties (paragraph 36).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    26. Supplies of spare parts and services after construction

    After construction is completed and the works has been taken over by the purchaser, the purchaser will have to obtain spare parts to replace those which are worn out or damaged, and to maintain, repair, and operate the works. He may wish to obtain from the contractor the spare parts and the repair, maintenance and operation services which he may need. The degree of assistance from the contractor needed by the purchaser in regard to the supply of spare parts and services after construction will depend on the technology and skilled personnel possessed by or available to the purchaser (paragraphs 1 to 3).

    It is advantageous for a purchaser from a developing country to acquire or to have available locally the spare parts and the technology and skills necessary to maintain, repair and operate the works. To this end, he may seek in his contract with the contractor to obtain a transfer of the technology and skills required for the manufacture of spare parts and the carrying out of the services. The transfer of technology and skills to the personnel of the purchaser may be affected under training obligations undertaken by the contractor. Such a transfer may be of value to the developing country itself as it may promote its industrialization process (paragraphs 4 and 5).

    The planning of the parties with regard to the supply of spare parts and services after construction would be greatly facilitated if the parties were to anticipate and provide in the works contract for the needs of the purchaser in that regard. Other approaches will have to be adopted if this is not possible (paragraphs 7 to 9). The continued availability of spare parts for the operational lifetime of the works is of considerable importance to the purchaser (paragraphs 10 and 11).

    A person offering to construct the works may be required to indicate the spare parts which will be needed over a specified period of operation, and the prices at which and the period of time during which he can supply them (paragraphs 12 and 13). The continued availability of spare parts is of crucial importance to a purchaser from a developing country and, accordingly, it may be necessary for him to take steps, through appropriate contractual provisions, to secure a supply of these either from the contractor or from the suppliers of them (paragraph 14). If spare parts are manufactured not by the contractor but for the contractor by suppliers, the purchaser may prefer to enter into contracts with those suppliers rather than obtain them from the contractor or, alternatively, he may wish to have the contractor procure them as his agent (paragraphs 15 and 16).

    The parties in their contract may address issues connected with the ordering and delivery of spare parts. The contract may describe the specifications of the spare parts to be supplied, and provide for a quality guarantee in respect of them (paragraphs 18 to 20).

    A prospective contractor may be required to indicate the maintenance services he is prepared to supply and the duration for which he is prepared to supply them. The contractor may be required to submit a maintenance programme designed to ensure the proper operation of the works over its lifetime, and the maintenance obligations of the contractor may be defined on the basis of that programme (paragraphs 22 to 24).

    The standards to be observed by the contractor when performing maintenance work may be specified in the contract. The contractor may be required to furnish a report on each maintenance operation. The contract may describe how the price for the provision of the maintenance services is to be determined and the payment conditions applicable (paragraphs 25 to 28).

    The contract should clearly define the extent of the contractor's repair obligations. It is in the purchaser's interest to enter into contractual arrangements that will ensure that the works will be repaired expeditiously in the event of a breakdown (paragraphs 29 and 30). To ensure that repairs may be undertaken speedily, the procedure for notifying the contractor of the need for repairs and for the contractor to advise the purchaser of any further necessary repairs should be agreed upon in the contract. The contractor may be required to furnish the purchaser with a report of the repairs carried out. The contractor may also be required to give a guarantee under which he assumes responsibility for defects in repairs (paragraphs 31 to 35).

    It is advisable for the contract to define carefully the scope of any obligations imposed on the contractor with regard to the technical operation of the works. This may be done on the basis of an organizational chart which shows the functions to be allotted to the personnel of the contractor in carrying out such a technical operation. The division of control between the purchaser and contractor during the operation of the works should be clearly described (paragraphs 37 and 38). The contract may provide how the price for such services is to be determined and the payment conditions applicable (paragraph 39).

    The contract may require the purchaser to facilitate the maintenance, repair and operation of the works by the contractor. The purchaser may wish to consider supplying locally available equipment and materials needed for maintenance and repairs (paragraph 40).

    The contract should specify when the contractor's obligations regarding the supply of spare parts, maintenance, repair and operation are to commence and may also determine the duration for which they are undertaken by the contractor or establish some mechanism for determining the duration at some later time. Where the contract imposes obligations on the contractor over a long duration, it may be desirable to include mechanisms for the modification of the obligations imposed on the contractor, in particular, as to the scope of those obligations and the price payable by the purchaser. Where the duration of the obligations is short, the agreement may be made to renew automatically (paragraphs 41 and 44).

    The parties may wish to deal in the contract with the termination of the obligations as to the supply of spare parts, maintenance, repair and operation. The contract may entitle the purchaser to terminate upon giving notice of a specified period (paragraph 45). The parties may also wish to provide for a system of remedies other than termination for the failure by a party to perform his contractual obligations with respect to the supply of spare parts, maintenance, repair and operation (paragraph 46).

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    27. Transfer of contractual rights and obligations

    The transfer of contractual rights and obligations as considered in this chapter includes, firstly, the transfer of the contract in its entirety, whereby a new party is substituted for one of the original parties to the contract, as well as the transfer of certain specific rights and obligations under the contract (paragraphs 1 to 4).

    The parties may find it advisable for the contract to permit a party to transfer the entire contract or specific contractual obligations only with the written consent of the non-transferring party (paragraphs 5 and 6). The parties^ may also wish to make, the transfer of contractual rights subject to the consent of or, alternatively, the absence of an objection by, the other party. An exception may be made for the transfer of certain contractual rights, for example, a transfer by the contractor of his right to receive payments from the purchaser (paragraph 7).

    The contract may contain provisions which seek to safeguard the interests of the non-transferring party in the event of a transfer, such as a provision that a transfer by the contractor of his right to receive payments from the purchaser is subject to the same rights of set-off that the purchaser had under the works contract in respect of payments, to be made to the contractor. Also, when a transfer may be made only with the consent of the non-transferring party, the parties may wish to provide that, in making the transfer, the transferring party must conform to any conditions subject to which the consent is given. The contract may require the transferring party, to give written notification to the non-transferring party of the transfer (paragraphs 8 to 11).

    It may be desirable for the contract to specify the consequences of a transfer in violation of the provisions of the contract (paragraph 12).

     

  • GregorGregor Supermoderator

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    28. Choice of law

    The parties may, within certain limits, choose the legal rules which are to govern their mutual contractual obligations (paragraphs 1 to 3). In the absence of a choice, uncertainty as to those rules may arise from two factors. The courts of several countries may be competent to decide the disputes between the parties. Since each court will, apply the rules of private international law of its own country, there may be several possible systems of private international law which could determine the law applicable to the contract. Secondly, even if it is known which system of private international law will determine the law applicable to the contract, the; rules of that system are sometimes too general to enable' the applicable law to be determined; with reasonable certainty (paragraphs 4 to 6).

    The parties may therefore wish to provide in the choice-of-law clause that the law of a particular country i& to govern their contract. Some difficulties may arise if the parties choose the general principles; of law or the principles common to some legal systems as the law applicable to their contract, instead of the law of a particular country (paragraph 9).

    In many cases, the parties may wish to choose as the applicable law the law of the country where the works is to be constructed. In some cases, they may wish to choose the law of the contractor's country, or of a third country (paragraph 11). In the case of countries where there are several legal systems applicable to contracts (e.g., some Federal States), it may be advisable to specify which one of those systems is to be applicable (paragraph 12). Certain factors may be relevant in making a choice of law (paragraph 13).

    Even in eases where the rules of private international law permit the parties to provide that the legal rules of different legal systems are to apply to different rights and obligations under the contract, it may be preferable to choose a single legal system to govern all the rights, and obligations (paragraph 14). If the parties wish the law applicable to the contract to consist of the rules existing at the time the contract is entered into, unaffected by later change? to those rules* they may expressly so provide. Such provisions will, however, be ineffective if the changes have a retroactive character which is mandatory (paragraph 15).

    Different approaches are possible to drafting a choice-of-law clause. One approach may be merely to. provide that the contract is to be governed by the chosen law. Another approach may be to provide that the chosen law is to govern the contract, and also to include an illustrative list of the issues which are to be governed by that law. Yet another approach may be to provide that the chosen law is to govern only the issues listed in the chosen law (paragraph 16).

    If several contractors are to participate in the construction, it is advisable for the purchaser to choose the same law as the law applicable to the contracts concluded by him with all the contractors. It is also advisable for the contractor to choose that same law as the law applicable to all contracts concluded by him with sub-contractors and suppliers (paragraph 19). The parties may wish to note the possible application to a works contract of the United Nations Convention on Contracts for the International Sale of Goods, and to make appropriate provision for that possibility (paragraphs 20 and 21).

    In addition to legal rules applicable to the contract by virtue of a choice of law by the parties or by virtue of the rules of private international law, certain mandatory rules of an administrative or other public nature in force in the countries of the parties may affect certain aspects of the construction. The parties should take those rules into account in drafting the contract (paragraphs 2 and 22). Certain of those rules concern technical aspects of the works to be constructed, others prohibit or restrict exports, imports, the transfer of technology and the payment of foreign exchange, and yet others impose customs duties and taxes on activities connected with the construction of the works (paragraphs 23 to 25).

  • GregorGregor Supermoderator
    ред: Декабрь 2019

    UNCITRAL Guide

    (Legal Guide on Drawing Up International Contracts for the Construction of Industrial Works)

    29. Settlement of disputes

    Disputes that arise under works contracts frequently present problems that do not often exist in disputes arising under other types of contracts (paragraphs 1 to 3). The mechanisms provided in the contract for the settlement of disputes might include negotiation (section B), conciliation (section C), arbitration (section E) or judicial proceedings (section F). A referee may also be authorized to settle disputes (section D).

    It may be desirable for the contract to provide some means to facilitate the settlement of two OT more related claims in the same proceedings (paragraph 4).

    The most satisfactory method of settling disputes is usually by negotiation between the parties (paragraphs 10 and 11). If the parties fail to settle their dispute through negotiation, they may wish to attempt to do so through conciliation before resorting to arbitral or judicial proceedings. The parties may wish to provide for conciliation under the UNCITRAL Conciliation Rules (paragraphs 12 to 15).

    The parties may wish to provide for disputes that cannot legally or conveniently be settled in arbitral or judicial proceedings to be referred to a referee. The procedure followed by the referee may be quite informal and expeditious. However, there may exist only limited legal safeguards to ensure that the proceedings are conducted impartially and with due care. In addition, in contrast to an arbitral award or judicial decisions, it may not be possible to enforce a decision by a referee (paragraphs 16 to 21).

    Disputes arising from works contracts are frequently settled through arbitration. Arbitration may be conducted only on the basis of an agreement by the parties to arbitrate. Such an agreement may take the form of an arbitration clause included in the contract (paragraph 24). The parties may wish to compare the advantages and disadvantages of arbitral proceedings with those of judicial proceedings (paragraphs 22 and 23).

    It would be advisable for the contract to indicate what disputes are to be settled by arbitration. It might also authorize the arbitral tribunal to order interim measures. It is desirable for the arbitration agreement to obligate the parties to implement arbitral decisions (paragraphs 25 to 27).

    The parties may select the type of arbitration that best suits their needs. They may establish by agreement the procedural rules to govern their arbitral proceedings, such as the UNCITRAL Arbitration Rules (paragraphs 30 to 36). In addition, they may wish to settle various practical matters relating to the arbitral proceedings, including the number and appointment of arbitrators, the place of arbitration and the language of the proceedings (paragraphs 37 to 49).

    Where the parties wish their disputes to be settled in judicial proceedings, it may be advisable for the contract to contain an exclusive jurisdiction clause to reduce the uncertainties connected with judicial settlement. The validity and effect of the exclusive jurisdiction clause should be considered in the light of the law of the country of the selected court, as well as the law of the countries of the two parties (paragraphs 50 to 53).


    /конец резюме/

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