The United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules were adopted in 1976, and have been both broadly used and widely praised as simple and straightforward. Remarkably, in 34 years they have not been revised – until now. Revisions were finally approved this summer, and arbitration agreements concluded after August 15, 2010 and referring to the UNCITRAL Rules are presumed to refer to these revised rules, unless the parties otherwise agree. Given the length of time since they were first introduced, significant revisions might have been expected. But in testament to their basic soundness, many of the revisions are little more than tweaks.

The revisions serve three basic purposes. First, they fill in a few holes that have become apparent over the years. Second, some provisions are added to expedite the arbitration process—like adding a requirement that the tribunal establish a “provisional timetable for the arbitration.” Finally, they update the original rules to account for changes in technology. This recap is from front to back, not in order of significance. Some of the most significant changes are noted at the end, so read on!

Notices and Other Communications

The 1976 Rules (Article 2) required notices to be physically delivered, while the 2010 Rules provide that notices and other communications “may be transmitted by any means of communication that provides or allows for a record of its transmission.” E-mails and facsimiles are subject to two special rules. First, the communication is deemed received only if sent to a person specifically designated for receiving such communications. Second, they are deemed received on the day sent, except for a notice of demand for arbitration, which is deemed received on the day it reaches the recipient’s electronic address. Accordingly, you may wish to add a line to your UNCITRAL arbitration clause to designate an individual for receipt of a notice of arbitration, in addition to designating the place and language of the arbitration.

While Article 3 setting out the requirements for a notice of arbitration did not change, a new provision was added clarifying that the constitution of the arbitral tribunal will not be hindered by any controversy about the sufficiency of the notice, and giving the tribunal jurisdiction over such controversies.

Response to the Notice of Arbitration

A response to the notice of arbitration was not previously required, and Article 19 simply required the respondent to provide a statement of defense by a date determined by the tribunal. Article 4 of the 2010 Rules now requires the respondent to respond within 30 days of receipt of the notice of arbitration, with the response to include the name and contact details of each respondent, and any response to the items in the notice regarding the arbitration agreement, the relevant contract, the claimant’s description of its claim and requested remedy, and proposal with respect to the number of arbitrators.

The response may also include any objections to jurisdiction, a brief description of any counterclaims, and a notice of arbitration with respect to other parties to the agreement (beyond claimant). As the language is permissive instead of mandatory, it appears that counterclaims or crossclaims are permitted but not compulsory.

The Appointing Authority

The 1976 Rules contemplate the parties designating an Appointing Authority to assist with the appointment of arbitrators and any challenges to arbitral appointments. The procedures for determining an Appointing Authority are consolidated in Article 6 of the 2010 Rules with a few modifications. The new rules reduce the amount of time one must wait before making a request that the Secretary-General of the Permanent Court of Arbitration at the Hague resolve disputes regarding the Appointing Authority — from 60 days to 30 days. Additionally, asking the PCA to act as the Appointing Authority is now expressly permitted.

The Number of Arbitrators

The 2010 Rules retain the default position of having three arbitrators if the parties fail to agree on use of a sole arbitrator. However, Article 7.2 now provides more flexibility by allowing the Appointing Authority to appoint a sole arbitrator if one of the parties asks for this, or either party fails to appoint a second arbitrator and using just one is “more appropriate” under the circumstances of the case.

Arbitrator Challenges

The 2010 Rules add two innovations. First, a new annex provides a model statement of independence to be provided by proposed arbitrators. Second, a schedule is added for resolving any challenges (the original rules had a deadline for raising a challenge but no timetable for resolution). Per the new Rules, if the appointing party does not agree to the challenge, or the challenged arbitrator does not withdraw, in either case within 15 days, then the challenging party has 30 days from the date of the challenge to pursue it with the Appointing Authority, and otherwise it is waived.

Arbitrator Liability

Article 16 of the new Rules adds a waiver of liability for the arbitrators “save for intentional wrongdoing.” This waiver also applies to the Appointing Authority and to experts appointed by the panel.

Joinder

Article 17.5 now permits the tribunal to allow other parties to the arbitration agreement to be joined, unless the third party would be prejudiced by joinder. This is a significant advance over the prior rules that were silent on the subject.

Arbitral Fees

The 2010 Rules attempt to address the problem of excessive fees by requiring that the fees be reasonable, requiring the arbitrators to explain how they have fixed the fees and costs, and allowing the parties to appeal the fees and costs to the Appointing Authority. Previously, the tribunal members set their own fees, and there was no real provision for oversight, since UNCITRAL arbitration is non-administered. This addresses one of the most common criticisms of non-administered arbitrations generally.

Andrew Ness
William DeVan

“Thus the future American Business will require the highest degree of sensitivity to the political framework in which it functions and to the great coming changes in the World political process.” KISSINGER, Henry A. (1977). Speech before the Future of Business Project of the Center for Strategic and International Studies. Georgetown, Virginia, Washington, D.C.

“First, it is clear that managers consider political instability and/or political risk, typically quite loosely defined, to be an important factor in the foreign investment decision. Second, It is just as clear that rigorous and systematic assessment and evaluation of the political environment is exceptional. Most political analysis is both superficial and subjective and not integrated formally into the decision making process. It would appear that the resulting subjective perceptions of ‘political instability’ are equated on almost a one to one basis with a poor investment climate. The response frequently is avoidance; firms simply do not get involved in countries or even regions, they perceive to be risky. Last, managers appear to rely primarily on internal (to the firm) sources for environmental information. Wlien they look for outside data, they are most likely to go to their banks or the general and business media.” KOBRIN, Stephen Jay (1978). Political risk : a review and reconsideration. Cambridge, Mass. : Alfred P. Sloan School of Management, Massachusetts Institute of Technology.

In any cross-border financing, parties (banks specially) take a political risk in the sense that a collapse of the existing political order in the borrower’s country or the imposition of new taxes, exchange transfer restrictions, nationalisation or other laws may jeopardise the prospects of repayment and recovery. In project financing, the political risks are more acute for many reasons, including:

a) the project itself may require governmental concessions, licences or permits to be in place and maintained, particularly where the project is for power generation, transport, infrastructure or the exploitation of the country’s natural resources – oil, gas and minerals; and

b) the project may be crucial to the country’s infrastructure or security and accordingly be more vulnerable to the threat of expropriation or requisition – power projects, airports, seaports, roads, railways, bridges and tunnels are obvious examples.

The term political risk is widely used in relation to Project Finance and can conveniently be defined to mean both the danger of political and financial instability within a given country and the danger that government action (or inaction) will have a negative impact either on the continued existence of the project or on the cash flow generating capacity of a project. Different projects and different project structures will obviously encounter different types of political risk. However, examples of events that might be classified as political risks are set out below:

a) expropriation or nationalisation of project assets (including the shares of a project company);

b) failure of a government department to grant a consent or permit necessary for starting, completing, commissioning and/or operating a project or any part of it;

c) imposition of increased taxes and tariffs in connection with the project, including products generated by the project, or, perhaps, the withdrawal of valuable tax holidays and/or concessions;

d) imposition of exchange controls restricting transfer of funds outside of the host country or availability of foreign exchange;

e) changes in law having the effect of increasing the borrower’s or any other relevant party’s obligations with respect to the project, e.g. imposing new safety, health or environmental standards or other changes in law that result in changes being necessary to the design of any equipment or process;

f) politically motivated strikes; and

g) terrorism.

There is no single way in which a lender can eliminate all project risks in connection with a particular project. One of the most effective ways of managing and reducing political risks, however, is to lend through, or in conjunction with, multilateral agencies such as the World Bank, the European Bank for Reconstruction and Development and other regional development banks such as the African Development Bank and the Asian Development Bank.

There is a view that, where one or more of these agencies is involved in a project, then the risk of interference from the host government or its agencies is reduced on the basis that the host government is unlikely to want to offend any of these agencies for fear of cutting off a valuable source of credits in the future. This is a persuasive argument and certainly one that has some historical basis. For example, when countries such as Mexico, Argentina and Brazil were defaulting on their external loans in the early 1980’s, they went to some lengths to avoid defaulting on their multilateral debts, whether project-related or not.

Other ways of mitigating against political risks include:

a) private market insurance – although this can be expensive and subject to exclusions. Further, the term that such insurance is available for will rarely be long enough;

b) obtaining assurances from the relevant government departments in the host country, especially as regards the availability of consents and permits;

c) the Central Bank of the host government may be persuaded to guarantee the availability of hard currency for export in connection with the project; and/or

d) as a last resort, but an exercise which should be undertaken in any event, by a thorough review of the legal and regulatory regime in the country where the project is to be located to ensure that all laws and regulations are strictly complied with and all the correct procedures are followed with a view to reducing the scope for challenge at a future date.

In some countries, host governments (or their agencies) may be prepared to provide firm assurances on some of the above matters to foreign investors and their lenders. Obviously such assurances are still subject to a performance risk on the host government concerned, but at a minimum they can make it very difficult, as well as embarrassing, for a government to walk away from an assurance given earlier in connection with a specific project and on the basis of which foreign investors and banks have participated in a project.

As indicated by ASHLEY and BONNER:  ”Political risk identification, measurement, and management are key to successful international construction contracting. Multinational contractors are particularly sensitive to quick, unexpected change in the political environment that affects principal cash-flow elements of their projects. Traditional political risk analysis used by manufacturing or heavy industrial firms for capital investment decisions does not adequately address contracting risks. An alternate approach is presented to fill this important gap. Essential to this treatment is the identification of the primary political source risks and their impacts on project cash-flow elements. Recognition and planning, rather than gambling, is emphasized as a contractor’s best approach to successful international construction.” Let’s learn with them.

Reference:

AHARONI, Yair (1966). The Foreign Investment Decision Process. Boston, Harvard University Press.

ALFARO, L., KALEMLI-OZCAN, S. and VOLOSOVYCH, V. (2008). Why doesn’t capital flow from rich to poor countries? An empirical investigation, Review of Economics and Statistics, Vol. 90, pp. 347–368.

ASHLEY, David B. and BONNER Joseph J. (1989). Discussion of ‘Political Risks in International Construction’, Journal of Construction Engineering and Management, Vol. 115, Issue No. 1 (March/April, 1989), pp. 161-161.

FITZPATRICK, Mark (1993). The Definition and Assessment of Political Risk in International Business: A Review of the Literature, The Academy of Management Review, Vol. 8, No. 2 (April, 1983), pp. 249-254.

FRYDMAN, R., GRAY, C., HESSEL, M., and RAPACZYNSK, A. (1999). When does privatization work? The impact of private ownership on corporate performance in the transition economies, Quarterly Journal of Economics, Vol. 114, No. 4, pp. 1153-1191.

GLEASON, K. C., MCNULTY, J. E., and PENNATHUR, A. K. (2005). Returns to acquirers of privatizing Financial Services Firms : An International Examination, Journal of Banking and Finance, Vol. 29, pp. 2043-2065.

KOBRIN, Stephen J. (1979). Political risk : A review and reconsideration, Journal of International Business Studies, Vol. 10, pp. 67-80.

KOBRIN, Stephen J. (1980). Foreign enterprise and forced divestment in the LDCs, International Organization, Vol. 34, pp. 65-88.

LEWIS, M. (1979). Does political instability in developing countries affect foreign investment flow?, Management International Review, Vol. 19, No. 3, pp. 59-68.

REEB, D. M., KWOK, C., and BAEK, Y. (1998). Systemic Risk of the Multinational Corporation, Journal of International Business Studies, Vol. 29, No. 2, pp. 263-280.

SCHMIDT, D. A. (1986). Analyzing political risks, Business Horizons, Vol. 29, No. 4, pp. 43-50.

The UAE construction sector is a continually developing market with complex transactions becoming increasingly prevalent. The evolution of the construction sector has highlighted the need for more robust construction contracts that deal with all the relevant risk issues for a project.

Presently, many companies in the UAE rely heavily on the use of standard form construction contracts (”SFCCs”) as a basis for their contractual obligations, as opposed to using bespoke construction contracts drafted for each project.

There are various types of SFCCs which have been developed by different entities in different regions. Some examples of SFCCs include the Fédération International des Ingénieurs-Conseils or International Federation of Consulting Engineers (”FIDIC”) construction contracts, the Joint Contractors Tribunal (”JCT”) construction contracts, the Australian Standards construction contracts and the list continues.

The FIDIC Red Book 1987 and 1999 editions (which are construct only contracts) are the most commonly used SFCCs in the UAE.

The FIDIC 1987 Red Book is a more employer friendly contract, whereas the newer FIDIC 1999 Red Book is a more balanced contract. As the 1987 edition is an employer friendly contract, it is still used by many companies in the UAE.

Design and build (”D&B”) contracts and engineer, procure and construct (”EPC”) contracts have traditionally been used sparingly in the UAE. However, with the increase in the number of experienced contractors in the region over the past few years and the wide variety of expertise that is now offered by construction contractors, D&B and EPC contracts are finding their way into the market.

SFCCs are very useful instruments for parties seeking to enter into a contract for the performance of construction work. They generally address a majority of the issues which should be considered when entering into a construction contract and are particularly useful where the works to be performed are relatively simple. There are a variety of advantages with using SFCCs, which include the following:

• The terms of SFCCs have an element of certainty to them as they have been tried and tested and many of the provisions have been the subject of litigation in various jurisdictions. Therefore, the parties can ascertain how certain clauses have been interpreted in the past and will generally have familiarity as to their meaning and intent.

• SFCCs are relatively quick to procure (assuming they are not heavily amended) and parties are generally willing to accept the clauses in SFCCs as they are regularly used in the industry.

• The use of SFCCs generally results in reduced legal costs as a party may choose to use a SFCC that has only minor amendments. Furthermore, it is quicker to amend a SFCC rather than draft a bespoke construction contract.

• SFCCs generally cover most of the issues which need to be considered when entering into relatively simple or common construction contracts. Therefore, the parties can be less concerned that key issues are not addressed or considered by the parties when entering into a contract.

Despite being widely used and tried and tested, SFCCs are not appropriate to use for all projects. Parties need to carefully consider the terms of the SFCC and assess whether such a contract is appropriate in the circumstances. Some of the inherent risks with the use of SFCCs include the following:

• SFCCs are generic documents that must be amended to reflect the actual intent of the parties. The key risk areas for each project must be considered and the SFCC should be amended accordingly. Parties often make the error of relying on unamended (or inadequately amended) SFCCs which will not always address the unique risk issues in a project and may result in disputes arising as the contract does not adequately allocate risk.

• SFCCs are not always amended correctly, which can lead to uncertainty when clauses are interpreted. For example, if a party is filling in the blank for interest to be paid on outstanding invoices, the mere insertion of a figure will not be appropriate. Care needs to be taken to specify whether interest is calculated yearly, monthly or daily. This is an example of a very simple error to make, but it is surprising how frequent these errors occur when SFCCs are utilised.

• When amending SFCCs it is important to take care to ensure that the amendments flow through the whole contract and that all related clauses are amended. It is frequently the case that a party will amend a clause, which also affects the operation/interpretation of another clause, which in turn causes an inconsistency in the contract and leads to confusion.

• Certain clauses in SFCCs may be inconsistent with the applicable local law. It is important that parties consider this issue carefully, otherwise the situation may arise where a party is relying on a right in a contract which is not enforceable in a particular jurisdiction. For example, the enforcement of termination for convenience clauses in the UAE is questionable and a party seeking to rely on this right may find that they have no entitlement to do so. The same applies with respect to the applicability of time bar clauses. Therefore, it is important to consider whether the terms of a SFCC are purporting to introduce legal concepts which do not fit within the bounds of the local law.

From the above it can be seen that there are both advantages and disadvantages with using SFCCs. The key is for parties to consider the convenience and cost effectiveness of SFCCs in light of the need to have a more tailored contract which specifically addresses all the pertinent risk issues. Furthermore it is particularly important to assess whether the provisions of the SFCC are consistent with the local laws which govern the contract.

Care needs to be taken when using SFCCs. In an attempt to cut legal costs many companies use SFCCs without appropriate legal advice. Consequently, a SFCC which may appear to be your friend at the outset may well end up being your foe in the long run.

By Sachin Kerur and George Varma

A large part of the administration of a construction contract comprises a contractor seeking genuine contractual entitlements for additional time and costs and the determination and award or rejection of those claimed entitlements by the engineer/employer. As a result, contractor’s claims for extensions of time and additional costs are also often the subject of arbitral proceedings and litigation.

Under both the contractual process and subsequent formal dispute resolution proceedings, contemporary records form a critical part of the evidence to be utilised in evaluating the contractual entitlement. The importance of good record keeping – by both contractors and employer’s agents or engineers—cannot be overstated.

The maintenance of ‘contemporary records’ is an important risk management strategy under any form of contract or subcontract. Under the FIDIC suite of contracts, the failure to maintain contemporary records can severely prejudice or completely extinguish a contractor’s entitlement to additional time or cost.

Sub-clause 53.2 of the FIDIC Conditions of Contract 1987 (the ‘old Red Book’) provides that ‘the Contractor shall keep such contemporary records as may reasonably be necessary to support any claim he may subsequently wish to make.’ Of course, in the event that a contractor subsequently seeks to make a claim, the ‘contemporary records’ are often insufficient or are supplemented by subsequent evidence, such as witness statements from site staff, prepared a long time after the event and in contemplation of the claim.

The issue of what constitutes ‘contemporary records’ and whether or not ‘contemporary records’ can be supplemented by further evidence was considered in the often cited case of Attorney-General for the Falkland Islands v Gordon Forbes Construction (Falklands) Limited (No 2), before the Falklands Islands Supreme Court.

In this case, the court was asked to decide whether or not a witness statement prepared for formal dispute resolution proceedings (significantly after the event giving rise to the claim) could be used to prove a claim under an old Red Book contract where no contemporary records existed. In the judgement on this issue, the court stated that ‘contemporary records’ meant:

‘original or primary documents…prepared at or about the time giving rise to a claim, whether by or for the contractor or employer.’

The court also said that contemporary records does not include witness statements produced after the event, as such documents cannot be said to be original or primary documents prepared at the time. In so doing, the court confirmed the fear of the contractor – no contemporaneous documents means no entitlement.

The judgement in this case stands as a stark reminder of the criticality of ‘contemporary records.’

The situation under the FIDIC Conditions of Contract 1999 (’the new Red Book’) may not be as desperate as under the old Red Book, but contemporary records remain critically important and the failure to maintain such records still has the capacity to seriously affect the contractor’s rights of recovery.

The new Red Book contains a similar obligation under sub-clause 20.1 as was imposed under sub-clause 53.4 of the old Red Book. Sub-clause 20.1 states, in part, that:

‘the Contractor shall keep such contemporary records as may be necessary to substantiate any claim…’ Sub-clause 20.1 also states that ‘if the Contractor fails to comply with this or any Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim…’

While the Gordon Forbes case is authority for the proposition that failure to maintain contemporary records under the old Red Book may extinguish the contractor’s entitlement, failure to maintain contemporary records under the new Red Book may also prejudice the contractor’s rights or ability to recover. It is worth noting that the emphasis and value of witness evidence will of course be different from jurisdiction to jurisdiction. In civil law jurisdiction such as the UAE, for example, witness evidence may be more compelling than in common law jurisdictions. These differences do not affect the importance of maintaining contemporary records.

So at the risk of labouring the point, the moral is simple – record what happened, when it happened. While the tasks of maintaining a site diary, staying on top of correspondence, and keeping minutes of meetings may appear to be an inefficient use of site staff and managerial resources, such ‘contemporary records’ can be the key to securing contractual entitlements.

By Sachin Kerur and William Marshall

The World Bank and IFC have recently reported that Russia’s current energy inefficiency is equal to the annual primary energy consumption of France. Indeed, the low local cost of energy, a mainly declarative legislation on environmental efficiency and little public interest have long kept Russia out of the global warming debate, and far away from the exotic issue of green buildings.

This trend is hopefully coming to an end with the recent enactment of a new law with compulsory requirements on energy saving and efficiency. This marks a clear ambition by Russian policymakers and will probably enhance the nascent interest in green buildings of the main players in the real estate industry, who were severely hit by the current crisis and seek new growth opportunities.

A modest yet growing interest of the Russian real estate industry in green buildings…

Russia has experienced a tremendous construction boom in the last decade, with a clear premium on fast investment returns and the quantity of buildings rather than their quality. Western voluntary green building certification schemes – giving a rating to a specific building on the basis of ecological, social and economic criteria – were then clearly seen as luxury imports and during a long period set aside.

An interesting move towards international standards in general has nevertheless taken place in the last few years, initiated by the growing importance of international financing of Russian real estate projects (this has triggered inter alia the necessity of clean titles for mortgages, offshore contractual schemes, as well as the necessary “bankability” of international models of contracts such as FIDIC for construction, almost nonexistent in Russia ten years ago).

Progressively, this “international” evolution has naturally concerned green building certification, as a clear competitive advantage in a saturated real estate market (decreasing operation costs, insurance rates and legal liabilities, while increasing market differentiation and value). Such international events as the MIPIM have also been instrumental in convincing Russian real estate players of the potential added value of environmental certification.

Part of a global network, the Russian Green building council (RuGBC) http://www.rugbc.org/ created in 2009 is one of the most active advocates of green building certification in Russia, promoting mainly BREEAM schemes (originating from the UK in 1990) and to a lesser extent LEED (US rating scheme introduced in 1998) http://kluwerconstructionblog.com/2010/01/20/going-green-gets-greatly-muddled/. RuGBC is working to adapt these voluntary norms to the Russian context, which is very specific not least climate wise. The creation of a national Russian certification scheme is in this regard envisaged.

Due to the relatively recent Russian interest in green buildings, there are currently less than ten buildings in Russia which have been certified under BREEAM or LEED schemes (one having been developed by a Russian developer, Clearlink). This situation is particularly striking when compared with other emerging markets like China where green building certification schemes are widespread. It appears that this is essentially the result of national priorities, and Russia has recently demonstrated a shift towards such climate-friendly policies.

… Recently stimulated by a bold legislative reform on energy saving and efficiency

Publicly deploring Russia’s inefficient use of energy and its disastrous economic and ecological consequences, President Medvedev has called for an action plan to halve Russia’s energy intensity by 2020. According to the World Bank and IFC, such plan would cost a total of USD 320 billion, but would be paid back in just four years thanks to annual savings of USD 80 billion http://www.ifc.org/ifcext/rsefp.nsf/AttachmentsByTitle/FINAL_EE_report_Engl.pdf/$FILE/Final_EE_report_engl.pdf.

Following these declarations – anticipating somehow the possible alignment of Russian energy prices on the internal market to global market prices and the end of low cost energy – fundamental legislation was passed in 2009. First to implement parts of the Kyoto protocol (ratified by Russia in 2004) and, most importantly here, on energy saving and efficiency with the Federal Law No. 261-FZ dated November 23, 2009 (the “Law”). Certain provisions of the Law directly address energy saving and efficiency measures in the field of construction, these include:

- All new buildings (with few exceptions) will be submitted to Energy efficiency requirements (to be revised every 5 years) and will have to integrate compulsory energy meters to allow energy audits;

- Residential buildings will be rated according to their energy efficiency and such ratings will have to be indicated on the buildings’ facade;

- Public Procurement: energy efficiency of a tender has to be taken into account (considering the lowest lifetime cost of the building, not the lowest cost only);

- Tax incentives and administrative sanctions: while incentives are kept to a minimum, the Law provides for comprehensive administrative sanctions, the most efficient being that a building ignoring the Law requirements cannot be commissioned by the authorities (if the project (design) documentation / construction permit has been submitted to the authorities after November 27, 2009) and as a consequence under Russian law cannot be legally owned by anyone.

It is worth noting that the Law encompasses both construction and operation phases of a building project, and involves most of its actors, from developers and investors to operators and end users, together with designers and contractors. On a practical standpoint, this should permit an efficient implementation of the Law.

In this regard, the Law still lacks certain necessary application decrees and therefore many sensitive issues remain unanswered (e.g. under which SROs http://kluwerconstructionblog.com/2009/11/08/the-end-of-licensing-of-construction-related-activities-in-russia/ should an entity completing energy audits register). Many of these decrees have nevertheless been issued since November 2009 and Russian commentators agree that due to the clear political support of the reform, all of them should be issued within the next two years.

The implementation of this 2009 Law will therefore be an interesting test of Russian policymakers’ new commitment to environmental matters in general and to green buildings in particular.

Xavier Poulet-Mathis
The author thanks Irina Zimina-Lecornu (Attorney at Law, Moscow) for her collaboration.

On Monday, April 19, 2010, a federal judge in the Eastern District of Virginia handed down “the longest-ever prison sentence” for a Foreign Corrupt Practices Act (FCPA) violation. Charles Jumet was sentenced to 87 months in prison for conspiring to violate the FCPA and for making false statements to federal agents. Jumet, a vice president of Ports Engineering Consultants Corp. (PECC), pled guilty to paying over $200,000 in bribes to high-ranking Panamanian government officials between 1997 and 2003 in exchange for maritime contracts to maintain lighthouses and buoys along Panama’s waterways. (PECC’s president, John Warwick, also has pled guilty to the same conduct and is scheduled to be sentenced on May 14). In addition to the long prison term (over 7 years) Jumet was also sentenced to three years of supervised release and fined $15,000.

Neil MacBride, the U.S. Attorney leading the prosecution team, noted, “Bribery isn’t just a cost of doing business overseas. Today’s sentence makes clear that this is a serious crime that the U.S. government is intent on enforcing.” This statement succinctly illustrate the US DOJ’s commitment to prosecute individuals who violate the FCPA.

Assistant Attorney General Lanny Breuer has made no secret that the “prosecution of individuals is a cornerstone of [the DOJ’s FCPA] enforcement strategy.” “Put simply,” Breuer said in a November speech, “the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.” Thus, the FCPA poses a hazard not just for corporate reputations and profits but also for the individual executive. Companies can be fined, but only individuals can be put in prison, and DOJ well knows that the prospect of a stretch in the Federal pen can have considerably greater deterrent effect than the possibility of your employer having to pay a fine. Look for more such announcements in the months and years to come, as FCPA enforcement efforts continue to escalate.

Fiona Philip
Andrew Ness

I am a contractor working on a wastewater project in Eastern Europe, using the FIDIC Yellow Book –Design & Build. Vol.3 of our contract contains the following clause:

“Tests on Completion

The first 30 days shall be a monitoring period during which the Contractor sets up the operation of the plant and conducts his own water quality tests to confirm that the final effluent consent has been met. At the end of this period the Contractor shall notify the Engineer that the plant is complete and meeting the Process Guarantee which then shall be met by a further 30 consecutive days before Taking Over can take place.”

We have met the final 30 consecutive days successfully and want taking over. The Employer says we must complete the 90 days which takes us outside of the construction period and hence delay damages are being threatened.

I say we have satisfied the contract at the end of the 30 consecutive days and we should get Take Over even though it is not 90 days.

Have you any idea if we are right in our assessment?

Answer:
Firstly, a couple of brief provisos. I assume that you have made no amendments to the Yellow Book that affect this issue. I’m also assuming that, as you say, otherwise the works have indeed all been completed in accordance with the Contract.

Have the Tests on Completion been passed and are the Works ready for Taking Over?

Obviously your argument is that having satisfied the first 30 day monitoring period and then completed the further 30 consecutive day period and having notified the Engineer that the plant is complete and meeting the Process Guarantee, you have therefore satisfied the requirements for completion and Take Over.

Clause 10 – which deals with Taking Over – says that the Works must have been completed in accordance with the Contract and that a Taking-Over Certificate must have been issued. The Employer must issue such certificate within 28 days of an application if the Works are substantially complete in accordance with the Contract (i.e. apart from minor outstanding work and defects not substantially affecting the Works); otherwise the certificate is deemed to have been issued.

Crucially, “completion” for these purposes includes:

• achieving the passing of the Tests on Completion; and
• “completing all work which is stated in the Contract as being required for the Works to be considered completed for the purposes of taking over”.

So it all comes down to (1) what is required to achieve passing of the Tests on Completion and (2) what the Contract states needs to be completed to achieve take over.

Under the Yellow Book, “Tests on Completion” means “those tests which are specified in the Contract or agreed by both Parties…and which are carried out under Clause 9 [Tests on Completion] before the Works…are taken over by the Employer”.

Clause 9 goes on to spell out the process for carrying out these tests, which falls into 3 stages – pre-commissioning tests, commissioning tests and trail operation – the latter which is intended to show that the plant is operating reliably.

Ambiguous provisions

I think that the Engineer/Employer will forcefully argue that waiting for the 90th day to elapse is part of the “trial operation” and is required for you to pass the Tests on Completion. I agree that there is some ambiguity in the wording in Volume 3 of the Contract as it states: “At the end of this period the Contractor shall notify the Engineer that the plant is complete and meeting the Process Guarantee which then shall be met by a further 30 consecutive days before Taking Over can take place.” However, my own view is that the drafting of the full testing period is clear and explicit – “The test on completion duration shall be 90 days“. Bearing in mind that FIDIC explicitly states “The documents forming the Contract are to be taken as mutually explanatory of one another” I do not think that this wording is actually inconsistent with the words: “which then shall be met by a further 30 consecutive days before Taking Over can take place”. In my view, all the Contract is saying is that the actual commissioning tests period is 30 days but there is then a further 30 day trial operation period to ensure the plant is operating reliably. This is also consistent with the description of Tests on Completion (and the 3 stages) described in Clause 9.1.
Of course, it is open to you to request clarification on this point from the Engineer. Clause 1.5.2 of the General Conditions provides that: “If an ambiguity or discrepancy is found in the documents, the Engineer shall issue any necessary clarification or instruction.”

You do not mention if the Engineer in this case is an independent engineer or is part of the Employer organisation. Whichever is the case, he may well come to the same view as the Employer and, in my opinion, this would be consistent with:

• the express wording (”The test on completion duration shall be 90 days“);
• interpreting the documents as mutually explanatory of each other; and
• the 3 stage process of Tests on Completion which includes a “trial operation”.

Whether or not the Engineer is truly independent, Clause 3.5 applies when a party asks the Engineer for clarification and provides that he must consult with each party in an endeavour to reach agreement. If agreement is not reached, “the Engineer shall make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.”

The Engineer must give notice to both parties of the determination with supporting particulars. Each Party shall give effect to each agreement or determination unless and until revised under Clause 20 (Claims, Disputes and Arbitration).

What do you do now?

Whilst I think that the correct interpretation is that the testing period is the full 90 days, I am conscious that complying with this period will put you in delay and at risk of liquidated damages for delay. Therefore in practical terms, I think that you should at least make the argument that you have already substantially completed. I think that there is sufficient ambiguity in the Volume 3 wording to argue that the Tests on Completion have been completed and that you are entitled to issue of the Taking-Over Certificate. Therefore you should apply for issue of this certificate if you haven’t already done so (although if you haven’t already done so you will still have to wait at least 28 days before the Engineer is obliged to issue the certificate or you can argue that it is deemed to be issued).

Under Clause 10.1 [Taking Over of the Works and Sections], the Engineer is deemed to have issued a Taking Over Certificate if he fails either to issue a TO Certificate or rejects the Contractor’s application for a TO Certificate within a period of 28 days after receiving the Contractor’s application.

You have not said whether or not the Engineer has rejected the application. If he has not, and more than 28 days has elapsed since you issued it, then the TO Certificate will be deemed to have been issued on the last day of the 28-day period.

Of course, if you applied for the TO Certificate right before the end of the 30+30 days, then the Engineer has up to 28 days to issue or reject, and you are almost in the same position as if your completion test phase was 90 days. If you applied substantially earlier than that then it will make a bigger difference and might be the difference between completing on time or late.

If you are late, then there probably is no harm in making the application for a Taking-Over Certificate. Note that in accordance with Clause 10.1.3(b) of the General Conditions, if the Engineer wishes to reject the application, he has to give reasons and specify the work that is required to be done by the Contractor to enable the TO Certificate to be issued. Even if the Engineer has purported to reject your application, you might be able to argue that he has not done so in accordance with the contract, because he has not specified the work that is required to be done in order to enable the TO Certificate to be issued. Of course in my view, he is likely to simply point to the further 30 day trail operation period under the Contract.

Delay to Testing

Whilst I do not think you have a basis of claim (as my interpretation of the Contract is that you have not yet fully passed the Tests on Completion), if the Employer’s insistence on you waiting until the end of 90 days after the start of the testing period is not permitted under the Contract, there is potentially the right to claim for delay. Clause 7.4.5 provides that “If the Contractor suffers delay and/or incurs Cost … as a result of a delay for which the Employer is responsible, the Contractor shall give notice to the Engineer and shall be entitled to claim both an extension of time and “payment of any such Cost plus reasonable profit, which shall be included in the Contract Price” (Clause 7.4.5(b)). Equally there is the ground in Clause 8.4.1 (e), being “any delay, impediment or prevention caused by or attributable to the Employer, the Employer’s Personnel, or the Employer’s other contractors on the Site.” The Employer’s Personnel, as defined, includes the Engineer.

Any right to claim will be subject to strict compliance with FIDIC’s notice provisions in Sub-Clause 20.1 (Contractor’s Claims)). I have previously stressed the importance of getting your notice exactly right in the previous Q&A; click here to read more. After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 (Determinations) (see above) to agree or determine these matters.

One final note

Finally, do you have any minutes or notes of any discussions with the Employer about completion testing? If you do, have a look at them to see whether they clarify the position. Obviously it will be helpful if you have evidence that you and the Employer intended the tests to consist of the 30-day monitoring period plus the second consecutive 30-day period only. It is worth noting that FIDIC Yellow Book does not include an “entire agreement” clause precluding extra contractual documents/negotiations in interpreting the Contract. If you have clear evidence that the parties both intended the completion tests to last for 30 days plus 30 days (only) then you may be able to claim successfully that the figure 90 was inserted into the contract by mistake instead of 60, in the event that the dispute goes to arbitration.

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]]> http://kluwerconstructionblog.com/2010/04/14/tests-on-completion-under-the-fidic-yellow-book/feed/ 0 http://kluwerconstructionblog.com/2010/03/05/getting-into-the-greenbacks-hurdles-in-competing-for-u-s-government-construction-work/ http://kluwerconstructionblog.com/2010/03/05/getting-into-the-greenbacks-hurdles-in-competing-for-u-s-government-construction-work/#comments Fri, 05 Mar 2010 17:15:43 +0000 Andrew Ness http://kluwerconstructionblog.com/?p=421 by Andrew Ness

by Andrew Ness Non-U.S. companies frequently ask whether they are eligible to compete for U.S. Government construction and renovation projects, whether within the U.S. or on U.S.-owned facilities abroad. The answer is a simple “yes” in the great majority of cases, unless the project requires access to secure or classified information. Much of [...] read more »



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Leave a comment on Getting into the Greenbacks: Hurdles in Competing for U.S. Government Construction Work]]> by Andrew Ness

Non-U.S. companies frequently ask whether they are eligible to compete for U.S. Government construction and renovation projects, whether within the U.S. or on U.S.-owned facilities abroad. The answer is a simple “yes” in the great majority of cases, unless the project requires access to secure or classified information. Much of the work on U.S. Embassies, for example, requires such access (and some is restricted to only U.S. firms). To work on a secure/classified project, the contractor must possess an Industrial Facility Clearance (FCL), issued in accordance with the National Industrial Security Program Operating Manual (NISPOM). So let’s consider the requirements for that.

To be eligible for an FCL, a company must: (1) need access to the classified information; (2) be organized under the laws of the United States; (3) have a reputation for integrity and lawful conduct; and (4) “not be under foreign ownership, control, or influence (FOCI) to such a degree that the granting of the FCL would be inconsistent with the national interest.” NISPOM ¶ 2-102. Factors considered here include the amount of foreign ownership, the type and sensitivity of information that will be accessed, and the company’s record of compliance with U.S. laws and regulations. NISPOM ¶ 2-301.

Translated, this means that the contractor needs to be a U.S. corporation, but that corporation can be foreign-owned or controlled (that is, a U.S. subsidiary), so long as it complies with the FOCI mitigation rules.

The FOCI mitigation rules are security measures to mitigate the extent of foreign control. One of the most commonly used measures is a Special Security Agreement (SSA). NISPOM ¶ 2-303(c). An SSA allows the foreign owner to maintain inside directors on the Board of the U.S. subsidiary/contractor, while excluding them from all decisions affecting the firm’s classified work. A Government Security Committee of independent, outside directors, approved by the U.S. government, oversees and ensures the proper handling of classified materials. What this means as a practical matter is that the foreign parent can have no influence or control over any decisions relating to the secure/classified project. For example, during the bidding phase the costs of the potential project can be discussed generally with the foreign parent, but the parent cannot be told of the security issues or the potential costs to comply with the security issues. Similarly, during performance, the parent can be told in general terms how the project is going, but cannot be told about a specific issue such as a blast-proof security wall that is causing a project delay.

Another mitigation method sometimes used is the establishment of a Proxy Agreement (PA) or Voting Trust Agreement (VTA). NISPOM ¶ 2-303(b). Under a PA or VTA, the voting rights regarding the foreign-owned stock of the U.S. subsidiary are vested in cleared U.S. citizens approved by the U.S. government. These Proxy Holders or Trustees become the directors of the corporation, to act independently from the foreign parent. Although the Proxy Holders must obtain approval from the foreign parent for major decisions, such as the sale of corporate assets or a corporate merger, the Proxy Holders or Trustees otherwise retain complete control, but the foreign parent still gets the financial benefit of its subsidiary’s operations.

Approval of FOCI mitigation measures is at the discretion of the government agency letting the contract, so there is no sure-fire guarantee of success. But by working with the government and being willing to implement those FOCI mitigation measures the government suggests, it usually is possible to obtain an FCL and compete for secure/classified U.S. Government projects.

Barbara Werther
Andrew Ness

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]]> http://kluwerconstructionblog.com/2010/03/05/getting-into-the-greenbacks-hurdles-in-competing-for-u-s-government-construction-work/feed/ 1 http://kluwerconstructionblog.com/2010/02/24/u-s-crackdown-is-raising-the-price-of-corruption/ http://kluwerconstructionblog.com/2010/02/24/u-s-crackdown-is-raising-the-price-of-corruption/#comments Wed, 24 Feb 2010 18:31:21 +0000 Andrew Ness http://kluwerconstructionblog.com/?p=417 by Andrew Ness

The principal weapon of the U.S. government to combat corruption in international business dealings is the Foreign Corrupt Practices Act (FCPA). To say that the U.S. is now aggressively pursuing FCPA cases is an understatement. In the past year, we have seen billions of dollars of fines, sting operations, and the pursuit of individuals around the world. Here are some of the latest FCPA headlines: read more »



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Leave a comment on U.S. Crackdown is Raising the Price of Corruption]]> by Andrew Ness

The principal weapon of the U.S. government to combat corruption in international business dealings is the Foreign Corrupt Practices Act (FCPA). To say that the U.S. is now aggressively pursuing FCPA cases is an understatement. In the past year, we have seen billions of dollars of fines, sting operations, and the pursuit of individuals around the world. Here are some of the latest FCPA headlines:

 Hefty penalties are the order of the day – In the past year, companies have settled with regulators to the tune of billions of dollars in penalties, fines and disgorgement.

• Halliburton/KBR paid $600 million;
• Siemens paid $1.6 billion;
• BAE paid $450 million; and
• It is reported that Daimler will pay an estimated $200 million.

Not factored in here is the cost of these investigations. Technip recently reported a charge of approximately $500 million related to government investigations into its involvement in the TSKJ joint venture in Nigeria (the Halliburton/KBR settlement). By contrast, investment in a comprehensive compliance program and FCPA due diligence on agents and consultants looks like an inexpensive way to protect a healthy bottom line.

 Sting operations – In a very aggressive move, the US Dept. of Justice’s sting operation in conjunction with the UK authorities caught everyone by surprise. In tactics often reserved for crime syndicates, the DOJ and UK police arrested 22 individuals who allegedly attempted to make improper payments to FBI agents posing as representatives of procurement officers for a top minister of an African country. The improper payments were intended to obtain the award of contracts to sell military and law enforcement supplies. In an unusual twist, no actual foreign officials were involved.

 Intergovernmental cooperation – On February 5, 2010, BAE settled with both the DOJ and the UK’s Serious Fraud Office. In addition to pleading guilty to one count of conspiracy to making false statements to the U.S. government, BAE also pled guilty to a charge that it failed “to keep reasonably accurate accounting records in relation to its activities in Tanzania.” BAE’s settlement included a payment of $400 million to the US and £30 million to the Crown Court (with a designated use to benefit the people of Tanzania). The Siemens settlement of $1.6 billion included a payment of approximately $560 million to the Munich Public Prosecutors Office for corporate failure to supervise officers and employees.

The February 11, 2009 Halliburton/KBR settlement only resolved issues with U.S. regulators, and investigations by French, British and Nigerian authorities remain unresolved. Additionally, as mentioned above, the FBI and City of London Police coordinated efforts in the January 19, 2010 sting operation that captured 22 individuals.

According to public reports, the US SEC made over 750 requests for assistance from foreign regulators in fiscal 2009, an increase of almost 200 requests from the prior year. Geographic and economic boundaries have all but dissolved, making it more difficult to hide corrupt payments in offshore entities and far flung subsidiaries.

 Individual prosecutions and more litigation – The U.S. government has also sent a clear signal that it is willing to go after individuals and to litigate when necessary. Regulators are pursuing the middlemen and agents (as in the Siemens and Halliburton investigations) who conceal the corrupt payments to government officials. 2009 alone saw three FCPA trials against four individuals. That equals the total number of trials in the prior seven years.

 Increased scrutiny on agents and consultants – Companies subject to the FCPA need to exercise due diligence to ensure that they form business relationships with responsible and qualified agents and consultants. The DOJ has provided companies with a list of “red flags” which, if present, should trigger heightened scrutiny. Red flags include unusual payment patterns, high commissions, a refusal by the agent or consultant to provide FCPA certifications, a lack of qualifications or expertise to perform the services being offered, and a referral to the agent or consultant by an official of a potential governmental customer. As highlighted in the Siemens, Halliburton and BAE settlements, failure to conduct comprehensive due diligence, or turning a blind-eye to any one of these “red flags” can be highly damaging to a company’s reputation and bottom line.

Multinational construction companies take note – enforcement of the FCPA is here to stay!

Fiona Philip
Andrew Ness

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]]> http://kluwerconstructionblog.com/2010/02/24/u-s-crackdown-is-raising-the-price-of-corruption/feed/ 0 http://kluwerconstructionblog.com/2010/02/16/a-new-year-brings-fresh-thinking-from-fidic-and-new-developments/ http://kluwerconstructionblog.com/2010/02/16/a-new-year-brings-fresh-thinking-from-fidic-and-new-developments/#comments Tue, 16 Feb 2010 15:33:03 +0000 Sarah Thomas http://kluwerconstructionblog.com/?p=380 by Sarah Thomas

I thought that I would hail in the new year with an update on some interesting construction developments. Put it down to a period of reflection over the Christmas break! As I want to cover a number of areas, I have split this update into 2 postings. In this first update, I am going to cover the latest FIDIC news and the new Bribery Bill currently going through the UK parliament. In my next posting I will look at two recent construction cases in English law, the first covering recoverability of damages and the English "remoteness" rule, the second covering treatment of contractual notice bars for claims.read more »



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Leave a comment on A new year brings fresh thinking from FIDIC and new developments...]]> by Sarah Thomas

I thought that I would hail in the new year with an update on some interesting construction developments. Put it down to a period of reflection over the Christmas break! As I want to cover a number of areas, I have split this update into 2 postings.

In this first update, I am going to cover the latest FIDIC news and the new Bribery Bill currently going through the UK parliament. In my next posting I will look at two recent construction cases in English law, the first covering recoverability of damages and the English “remoteness” rule, the second covering treatment of contractual notice bars for claims.

Firstly, on FIDIC. I presented at the annual FIDIC conference in London in December of last year and can report some interesting developments:

FIDIC have just published a new Subcontract form (termed the Conditions of Sub-Contract for Construction). This is specifically designed as a construction only subcontract – to be used by main contractors operating under either the 1999 FIDIC Conditions of Contract for Construction for Building and Engineering Works designed by the Employer (known as the “Red Book”) or the Multilateral Development Bank’s Harmonised Edition of these FIDIC Conditions of Contract. The subcontract is drafted very much on the basis of a “total pass down of risk”, although there are some interesting features (particularly from an English law perspective).

For example, the payment provisions are effectively tied to payment under the “Main Contract” and include “pay when paid” clauses (Sub-Clause 14.6 (c)) in that the Contractor can withhold monies where “the Employer has failed to make payment in full to the Contractor in respect of those amounts…”. Of course, this protection will not apply where the reason for non-certification under the Main Contract is because of Contractor default or the Employer’s insolvency. Whilst common in subcontracts in Europe, any construction contract signed in England and Wales is subject to the UK Housing Grants, Construction and Regeneration Act and this prohibits pay when paid provisions. It will be interesting to see how this plays out in the market – readers will no doubt be conscious of the current harsher market conditions for contractors generally – so this may be more palatable to subcontractors in these straitened times. What it means in practice is that subcontractors will have to take a good deal more notice of what the main contract says about payment, and certification of payments, to ensure they are comfortable with these risks flowing down into their subcontracts.

As for other key features,

• Whilst the underlying principle is direct risk pass down, there is no general provision (as appears in many “pass-down” subcontracts) saying, for example, that the Sub-Contractor shall carry out the Sub-Contract Works such that he does not put the Contractor in breach of the Main Contract.

• The Sub-Contract assumes that the Main Contract will be the FIDIC Red Book and directly refers to Main Contract Clauses. Of course, the numbering will not necessarily work if the Main Contract is either not FIDIC or is an amended form of FIDIC.

• Not surprisingly, there are provisions allowing for immediate termination where the Main Contract terminates (Clause 15). Where the Main Contract is terminated for default the Sub-Contractor only gets the value of work and documents produced up to the date of termination (less amounts recovered by the Employer and any other losses and damages incurred by the Contractor and, notably in my view, its other sub-contractors). If not in breach, the Sub-Contractor gets paid the value of works/documents to date, demobilisation and reasonable repatriation costs, any other costs “reasonably incurred” in expectation of completing the Sub-Contract Works plus loss of profit. This is all fairly standard, although I suspect a number of main contractors may wish to curb the ‘loss of profit’ claim. However, the biggest potential issue is I think Sub-Clause 15.6. This allows the Sub-Contractor to terminate where there would be a right to do so under the Main Contract. The clause simply refers to the termination events in the Main Contract equally applying to the Sub-Contract. I query whether this actually works or makes the Contractor’s other termination rights sufficiently clear. It would be preferable to spell them out for such an important clause.

FIDIC is also proposing to issue a new user guide to accompany the Design Build and Operate form (Gold Book). Just to remind readers, the current form (first published in September 2008) covers design, build and long term operation of facilities on green field sites. The new guide will include provisions allowing this to be used for brown field sites. No doubt FIDIC hope that this will lead to a much greater use of the Book as most DBO projects involve some element of upgrade of existing facilities alongside new build. However, as this form is still in its infancy I am yet to hear from anyone who has actually used this form (- readers please get in touch if you have), it remains to be seen whether this will lead to wholesale take up of this new form. I think one reason for the lack of use so far may be that the form has no provision for funding by the Contractor and so is not suitable for PPP projects.

At the same time, FIDIC are proposing a review of all the contract forms in their current “1999 Rainbow Suite” (i.e. principally the Red, Yellow and Silver Books) and plan to amend these in line with current business practices and in response to request for amendments over the last decade. For example, one likely amendment is to include the amendment FIDIC has already made to Sub-Clause 20.1 in the DBO form dealing with the procedure for Contractor’s claims. Just to recap, Sub-Clause 20.1 has always been a sticking point for contractors as it essentially precludes any entitlement to claim for time/money if the conditions of this clause are not strictly complied with. What the Gold Book has introduced is a slight relaxation of this absolute notice bar, allowing the Contractor to apply to the Dispute Adjudication Board for a ruling if he considers there are circumstances which justify the late submission of a notice. If the DAB agrees that in all the circumstances “it is fair and reasonable that the late submission be accepted”, it can overrule the 28 day notice limit.

FIDIC canvassed views at our London conference as to what other clauses should be amended. There were a number of requests for a review of the variations clause (Sub-Clause 13) and in particular to the right of the Contractor to payment for value engineering changes. Currently under all the forms, the Contractor bears the cost of any proposal and only if it is accepted by the Employer, does he then get remunerated. This has always been something of a disincentive to propose value added changes.

Before signing off on this first update, I would like to touch upon the Bribery Bill 2009 which is currently going through the UK Parliament. The reason this has been introduced is because the UK has come under foreign criticism from the Organisation of Economic Co-Operation and Development (OECD – see website), amongst others, because of its perceived failure to carry out its obligations under the OECD Convention, which the UK ratified in 1998. The new Act, if it becomes law, will impact upon all commercial organisations seeking contracts with the public sector both in the UK and abroad.

Key features to watch out for if you are a UK contractor are the proposed new offences of bribing a foreign public official and the corporate offence of failure to prevent bribery by persons working on behalf of the business, including employees, agents and subsidiaries (whether domestic or foreign). The corporate offence applies to companies or partnerships which are either formed under UK law or which carry on business in any part of the UK – in other words, it could also impact on foreign companies doing business in the UK. The offence is punishable by an unlimited fine for the company whilst company individuals with responsibility for anti-corruption measures face personal criminal liability and up to 10 years’ imprisonment.

It will be a defence to the corporate charge for a company to show that “adequate procedures” to prevent corruption were in place at the time. The Bill does not detail what “adequate procedures” means but this month the Government agreed to add an amendment that will require the Secretary of State to provide guidance on this. All UK companies and overseas companies doing business in the UK should probably review their internal procedures carefully and update training, policies and contracts of employment to reflect the new law.

Some of you may ask whether there is sufficient parliamentary time to push this through before the UK election (which most commentators are forecasting in early May this year). The current view is that while the Bill is generally understood to have cross-party support, timing is very tight as there are a number of further stages that the Bill must complete in the House of Commons before it can be passed into law. If the Bill is not passed in time, it will need to be re-introduced in the next Parliament.

Any thoughts on the latest FIDIC development or indeed on the UK’s proposed anti corruption measures are of course always welcome!

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