The construction industry, like the food and beverage business, shows considerable partiality to foreign workers. The most common reason – lower labour costs. Thus, the construction industry is filled with foreign workers running the gamut from India, Sri Lanka, China, Thailand, Indonesia, Philippines and even Myanmar.

Things however look set to change with the 2010 budget announcement including a call to increase local productivity as foreign workers now comprise almost a third of the total workforce. This has led to government moves to reduce dependence on foreign workers by hikes in the foreign worker levy and reducing the “man-year” entitlement which directly restricts the number of foreign workers on a site.

This is clearly designed to encourage businesses to restructure and upgrade their operations through innovation and training of their local workers.

Productivity is expected to rise, but so are construction costs, possibly by as much as 6 per cent when these restrictions to foreign labour kick in next year.

Comparing the Singapore increase with construction costs in key Asian cities, prices are generally expected to rise with economic recovery and the increase in building needs. The Singapore Building and Construction Authority statistics for 2nd quarter 2010 showed standard high rise office building costs of US$1,910/m2 in Hong Kong, US$760/m2 in Beijing, US$832/m2 in Shanghai, US$1,835/m2 in Singapore.

In perspective, Beijing and Shanghai are some of the cheapest cities to build but prices for these cities could rise 3 per cent this year and Hong Kong could register the biggest percentage increase in costs.

Rising levels of construction (and construction costs) are likely to herald more rather than less disputes.

A recent conference organised by the Singapore International Arbitration Centre discussed the development of business in India and the availability of arbitration. The booming Indian economy, set to hit 8 per cent growth this year, has created tremendous business opportunities for investors. As Singapore’s law minister Mr K. Shanmugam who spoke at the conference noted, the best-laid investment plans can turn awry and more are increasingly looking at arbitration in lieu of court proceedings to settle disputes.

Singapore is already the top Indian destination for investments abroad by Indian companies between 2008 and 2009 and more than 4,000 Indian firms operate here today. Singapore’s attractiveness as an arbitration hub for Indian companies is also reflected in SIAC’s announcement that it handled arbitration cases from India involving $173 million for 2010 to date, up from disputes involving $156 million for the whole of 2009.

Investors in the major countries in the region seek a neutral venue for arbitration and Singapore presents a easily accessible, neutral and effective arbitration venue.

Having world class facilities helps as well as Singapore then becomes the ideal venue for firms that might need help if their investments hit trouble. As Sir Vivian Ramsey QC observed on Friday last week at the SIAC-SCL Conference on “Construction Disputes Asia” in Singapore, arbitration in Singapore has the support of the government as seen with the building of a “state-of-the-art” arbitration centre at Maxwell Chambers.

At the same time, India has recognised the need to institutionalise its arbitral process and is now seeking to revamp the Indian Arbitration and Conciliation Act. Generally, the proposed changes reflect a shift towards institutional arbitration in lieu of the prevalent practice of ad hoc arbitration in India.

These amendments also underline a determined effort to reduce the role of Courts by severely limiting the scope of the public policy exception.

One unusual and interesting proposal is the introduction of a deemed arbitration clause for commercial contracts worth 50 million rupees (about £7 million at today’s rates) or more unless the parties agree otherwise. In such cases where parties fail to refer the dispute to an approved arbitral institution, the Indian High Court is then empowered to authorize the appointment of an approved arbitral tribunal within 30 days of a reference made by a party.

The proposals are very much at an early stage in the form of a Consultation Paper. It will be interesting to see what progress it makes in the coming months.

Mohan R Pillay
Partner & Joint Head of Office
Pinsent Masons MPillay LLP
Chartered Arbitrator
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
Singapore 049318
E: mohan.pillay@pinsentmasons.com

This third edition replaces the SIAC Rules 2007 and is part of SIAC’s efforts to stay lean and effective as it keeps apace with the rapid growth of international arbitration.

Key updates include an expedited arbitration procedure for claim amounts less than S$5 m or in cases of exceptional urgency. The expedited process requires an award to be issued within six months from the tribunal being constituted and the reasons for the award may be in “summary form” under the expedited procedure.

Also new to the Rules are the inclusion of a new rule on interim and emergency relief through an Emergency Arbitrator prior to the constitution of tribunal.

The Rules also establish an SIAC committee to decide on jurisdictional challenges to the arbitrator when the other party does not agree to a challenge to the arbitrator and the arbitrator being challenged does not withdraw voluntarily within 7 days of notice of challenge.

Added teeth have been added to provide additional protection of confidentiality as the tribunal may impose sanctions for breach of confidentiality obligations.

A key change to the 2007 Rules was the introduction of a Memorandum of Issues to be drawn up between the parties. This has now been removed in the new 2010 Rules.

With the growing popularity of international arbitration as a dispute resolution option, the robustness and flexibility of the amended SIAC Rules have offered a timely change when choosing SIAC as the administrating body for arbitration in Singapore.

The “greening” of equatorial Singapore sounds a bit odd until you realise that it refers to the Garden City’s buildings. Singapore has emerged as one of the more aggressive governments within the Asia-Pacific region in its pursuit of a green building program.

The Building Construction Authority (BCA) Green Mark certification scheme introduced in 2005 allowed developers till 2008 for the mandatory Green Mark scoring as part of Building Plan submissions and applications for Temporary Occupation Permits.

The certification comes with financial incentives as the BCA awards higher Gross Floor Area values for higher-tier Green Mark ratings.

Amongst the checklist items are efficient design for natural ventilation and lighting. Interestingly, points are also given for adjusting mechanical ventilation requirements in car-parks vis a vis CO sensors.

Heat transmitted from the roof is taken into account. Aesthetically, this has not been a bad thing with the creative use of roof gardens by developers. Even water efficiency toes the “green” line with rainwater diverted to landscape irrigation and bonus points given for using renewable energy from solar power or wind.

It’s been a testament to the BCA’s efforts that by May 2010, there are now 450 green buildings in Singapore with a total floor area of 16 million square meters or 8 percent of Singapore’s Gross Floor Area.

Other initiatives include a CleanTech Park (CTP) to be developed from July this year. The “green” themed business Park is expected to complete in 2030 with 20,000 people in 30 “living laboratory” buildings. These include “clean-tech” companies to commercialise green urban solutions for Singapore and the Asia-Pacific, along the same lines as Masdar City in the UAE.

The legal services landscape in Singapore is changing as well with the introduction of a new Joint Law Venture on the scene in the form of Pinsent Masons MPillay LLP, granted a JLV license in July this year by the Attorney-General’s Chambers.

Thomas Edison once said “Everything comes to him who hustles while he waits” – It’s an apt description of the association between Pinsent Masons and MPillay as the two entities patiently operated closely with each other for three years, by way of a formal association, from 2007 before obtaining their JLV license.

The pairing of the two entities through the JLV will allow a full range of service offerings as a “one-stop shop” option for clients, combining Pinsent Masons’ widely acknowledged international expertise with MPillay’s award winning in-depth local knowledge and experience.

As the sixth JLV in Singapore, it won’t be the first JLV but it will certainly be unique in its dedicated focus on the construction, engineering and energy sectors.

So some interesting and I believe positive developments for the Singapore legal environment in signing off this “Lean Green Venture” story.

Mohan R Pillay
Managing Partner, MPillay
Chartered Arbitrator
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
Singapore 049318
E: mohan.pillay@mpillay.com

The worth of “sands” in Singapore has taken on added dimensions in recent years given the republic’s dependence on imported sand from its neighbours for its thriving construction needs. Much hullabaloo has similarly been generated on the newsfront with the phased opening of two casinos, one of which happens to share the namesake of Marina Bay Sands.

Singapore’s construction demand in 2010 is projected to reach between S$21 billion and $27 billion this year (£10.5 to £13.5 billion at today’s rates) led by strong public sector construction demand at an estimated 65% of Singapore’s total construction bill. The city state embarked on more reclamation works and various road projects plus expansion of its network of stations and tunnels with a new Circle Line for its Mass Rapid Transit (MRT) System.

Private sector growth has been fuelled by the development of a new financial downtown area. Gamblers and thrill seekers meanwhile rejoiced at the government’s award in 2006 of two Integrated Resorts helmed by casinos and the much anticipated Universal Studios.

This growth brought with it increased demand for sand – land sand for concrete and sea sand for reclamation works. Malaysia banned the export of both sand types in 1997 and Indonesia followed suit in 2003 (sea sand) and 2007 (land sand). Highly disruptive to the MRT lines and the new financial downtown (i.e. including the casino complexes), the supply disruption sparked construction delays and lawsuits between contractors and employers as the price of sand tripled. The government stepped in to release stockpiled sand and a legislative fix saw licensing regulations in 2009 requiring importers to have procurement plans to handle any sudden supply disruptions and ensure the reliable growth of the construction industry.

From our new office on the 22nd floor overlooking the waters of Marina Bay to Marina Bay Sands Integrated Resort, the skyline has never been more dynamic and ever changing as Marina Bay Sands slowly emerges from delays to its original opening date of end 2009. Touted as the world’s second most expensive casino after MGM Mirage Las Vegas, Sands remained under construction as its rival, Sentosa Resorts World commenced phased opening of themed hotels such as its Hard Rock Hotel in January and casino in February. To the delight of thrill seekers, March witnessed the opening of Universal Studios on Resorts World (though not without hiccups as its Battlestar Gallactica duelling roller coaster ride remains suspended due to technical glitches).

With much relief, Sands got its casino license 1 day before its opening just last month on 27 April. However, Sands’ strength in MICE (meeting, incentive, convention and exhibition) suffered a slight blip recently after complaints during the 2010 Inter-Pacific Bar Association (IPBA) Conference plagued Sands, the first convention hosted by Sands. In the broad scheme of things though, we wait patiently for Sands to throw open its SkyPark sitting above its three hotel towers and for the world’s largest oceanarium to open at Resorts World.

Visitors to Singapore in a more professional capacity are also set to take advantage of recent updated arbitration legislation. The International Arbitration (Amendment) Act 2009 came into force on 1st January to reflect the 2006 changes to the UNICITRAL Model Law, from which Singapore’s International Arbitration Act (IAA) is based on.

Key changes to the IAA include support from the courts in granting orders in aid of foreign arbitrations (e.g. taking of evidence) and interim relief (freezing of assets, amongst others).

These changes stand Singapore arbitration in good stead along with the January 2010 official opening of Maxwell Chambers, a custom designed international dispute resolution centre with 12 preparation rooms and 14 medium and large hearing rooms, the largest being able to accommodate 80 people for a hearing. A full suite of available support services is available, from wireless internet, video conferencing and state of the art digital recording to transcription services, translation services and catered meals. In the 6 months from its soft opening in July 2009 to its official opening, 60 cases have been heard, the majority of them being international arbitration.

There are probably worse places to be in now than in Singapore, a city where the worth of sands may, to some at least, be worth more than diamonds…

Mohan R Pillay
Managing Partner, MPillay (in association with Pinsent Masons)
Chartered Arbitrator
Adj. Assoc. Prof., Faculty of Law, Nat. Univ. of Singapore
Visiting Professor, Centre of Construction Law, King’s College London
16 Collyer Quay #22-02
Singapore 049318
E: mohan.pillay@mpillay.com

Under current Rule 26 of the Federal Rules of Civil Procedure, all communications between legal counsel and a testifying expert who has been specifically retained to provide expert testimony, as well as drafts of that expert’s report, are subject to discovery by the opposing party. It is routine, not surprisingly, for the opposing party to request these documents. This then leads
lawyers and their testifying experts to go to great lengths to communicate in a manner that does not create a discoverable record, often at considerable expense and loss of efficiency. For example, substantive discussions about complicated and highly technical issues are limited to oral conversations, and the expert takes no contemporaneous notes. E-mails are similarly confined to purely administrative matters. Drafts of the expert’s report are not prepared. Sometimes, a duplicative “consulting” expert who will not testify has to be hired to provide assistance on issues where, if the testifying expert gets involved, the associated communications would all have to be produced. All this makes the process of retaining experts more costly and less efficient, and puts parties who cannot afford duplicate experts at a disadvantage.

This is all about to change, as the U.S. Supreme Court has recently approved amendments to Rule 26 that significantly alter current practice. (Congress can alter or block the amended rules, but this is not expected).

Under new Rules 26(b)(4)(B) and (C), most communications between the attorney and a testifying expert, as well as drafts of that expert’s report, will be covered by the work-product privilege and will no longer be subject to broad discovery rights. This will permit the attorney and the expert to communicate more freely about substantive issues, without the fear of those communications being obtained by the opposing party. The new rule has three exceptions, however: 1) the expert’s compensation; 2) the facts or data provided by the attorney and that the expert considered; and 3) the assumptions that the attorney provided and that the expert relied on; must all still be disclosed.

Another change relates to expert witnesses who are not required to provide a written report stating their opinions, because they are not retained or specially employed to provide expert testimony. Such “non-retained” experts are often used in construction disputes because project personnel are often subject matter experts, and therefore are permitted to testify as “hybrid” witnesses who provide factual testimony about events on the project, plus opinion or expert testimony in their specific area of expertise. While these experts do not need to provide a report, the rule changes include a new requirement to disclose the subject matter on which the witness is expected to testify as an expert, and to provide a summary of the facts and opinions that the witness is expected to offer. Draft versions of these disclosures, however, will be protected to the same extent as draft reports by “retained” experts. The revised portions of the Rules of Civil Procedure that will become effective December 1, 2010 can be found at:

http://www.supremecourt.gov/orders/ordersofthecourt.aspx

Todd Wagnon
Andrew Ness

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

By Matthias Scherer and Samuel Moss

News headlines in the UAE have recently proclaimed that “companies defaulting on salaries will soon be a thing of the past” (Gulf News), as the UAE government has launched its Wage Protection System (the “WPS”). Certainly the WPS is a significant step to protect the rights of workers in the UAE, and given the size and importance of the construction sector in the UAE, the WPS will also have a big impact on how employers in the UAE construction industry operate and pay employees. Below we look at the WPS, how it will operate and the impact the WPS will have on employers and employees across the UAE.

WHAT IS THE WPS?

The WPS is an electronic salary transfer system that requires companies to pay workers’ wages via specific financial institutions, such as banks and bureaux de change, approved and authorised by the government to provide such a service.

The system, developed by the Central Bank of the UAE, allows the Ministry of Labour (the “Ministry”) to create a database that records wages payments in the private sector in an attempt to guarantee the timely and full payment of agreed-upon wages. The WPS is essentially an initiative to safeguard the payment of workers’ wages – a system that is arguably overdue in the UAE.

REQUIREMENTS OF THE WPS

In order to comply with the WPS, a company will need to do the following:

• register with the Ministry;
• have a bank account with a bank operating in the UAE;
• enter into a contract with any financial institution approved and authorised by the Central Bank of the UAE to provide the WPS service;
• transfer workers’ wages via WPS by the specific deadlines set by the Ministry; (which is within 2 weeks of their due date or on the dates specified in the work contract if wages are to be paid more frequently); and
• meet all costs and expenses incurred in complying with the WPS.

CONSEQUENCES OF FAILURE TO COMPLY WITH OR JOIN THE WPS

Compliance with the WPS is mandatory for all businesses operating in the UAE and, of course, there are consequences for those businesses that fail to comply. The current sanctions are as follows:

• Institutions failing to transfer workers’ wages by the specific deadlines set by the Ministry will be denied the right to obtain new work permits. This ban will only be lifted 1 month after the transfer of the workers’ wages in full; and
• Institutions that delay wages’ payment more than 1 month after the due date will be denied the right to obtain new work permits, as well as all the institutions owned by the violating institution and all those responsible for the violation will be referred to court (in accordance with Ministerial Resolution No. 788 of 2009).

IMPACT OF THE WPS

Advantages

It is thought that this new system will apply to over 4 million employees when fully implemented and one significant advantage is that it is likely to enhance the Ministry’s ability to implement preventative measures to reduce labour disputes over wages.

The system will allow the Ministry to know, on a ‘real time’ basis, whether or not salaries have been paid in full.

Defaulting companies can be easily identified, and as the supervision and sanctions will be administered by the same Ministry, the application of sanction should also be quite simple. As discussed above, defaulting companies will be prevented from obtaining new work permits, which may create significant problems for employers and therefore be a significant incentive for a company to comply with the WPS.
Another consequence of the WPS is that disclosures must be made to the Ministry, impacting on the ability of local companies to ‘sponsor’ the employees of international businesses that do not have a corporate presence in the UAE. The illegal, but widespread, practice of local companies ‘sponsoring’ foreign individuals that are in fact employed by and performing services for an international business without a corporate presence in the UAE, will be affected by the disclosure and transparency required under the WPS. Under the new system, such arrangements will be harder to maintain.

While the WPS offers wage protection to all employees, it is unskilled workers, who are particularly vulnerable, that are arguably most in need of the protection afforded by the WPS however as is noted below, some difficulties are apparently being experienced in extending the WPS to this sector of the labour market.

Difficulties

It is apparent that there have been some teething difficulties in implementing the System, which unless resolved, may affect the utility of the System. Some businesses have cited the unwillingness of some banks to open accounts for low-income workers, which may represent a major obstacle in satisfying the requirements of the WPS. Time will tell how such issues are resolved.

WHERE TO NEXT?

The WPS is a positive step for the UAE in respect of disclosure and transparency, and may serve to protect the interests of often powerless employees. While the WPS appears to have been implemented to address a specific problem, it is inevitable that questions will be asked whether the centralisation and disclosure of labour and wage data to the Government may not also represent the first step towards subsequent governmental wage or employment policies.

By Sachin Kerur and Nicola Milne, Pinsent Masons Gulf Region

The Tort Law marks a milestone in PRC legislative history, and will have myriad implications for diverse areas of private and commercial activity.

As a construction lawyer, I am particularly interested in Article 86 of the Tort Law concerning liability for loss and damage caused by collapse of construction works.

Although the Tort Law has been in planning for some time, it seems to have been influenced by some very recent events. Much attention has been focused on the recent milk scandals as a catalyst for the product liability aspects of the legislation. But it is also widely speculated that Article 86 was driven by the recent case of a building collapse in Shanghai in June 2009. The collapse of a 13-floor building at Shanghai’s “Lotus Riverside” apartment complex was perhaps one of the top 10 local news events of 2009 in Shanghai. The accident killed one worker on site and left 489 home buyers without their expected homes (in many cases, costing all of their life savings). The collapse has been blamed on improper construction methods.

Quality problems have long plagued the construction industry in China. “Tofu Building” is the cheeky term used by the local press to describe such shoddy construction projects. Clearly, to some extent, this situation reflects a failure of the current legal and regulatory regime. Hence, there is little humor in this situation for Chinese policymakers.

Although there are administrative sanctions and contractual remedies for poor construction quality, tort legislation has been less than robust. Tort protections are especially important in addressing harm to innocent third parties who would not be entitled to compensation as a matter of contract.

No doubt in recognition of this, the Tort Law has clearly placed liability for collapse of construction works on the contractors and developers who are best able to avoid them in the first place.

Since 1987, Article 126 of General Principles of Civil Law (“GPCL”) has provided that:

“If a building or any other installation or an object placed or hung on a structure collapses, detaches or drops down and causes damages to others, its owner or manager shall bear civil liability, unless he can prove himself not a fault.”

GPCL Article 126 creates a rebuttable presumption that the current property owner or manager is liable in these cases. But these are quite disparate cases – there is a potentially immense difference between the types of causation involved in items falling from a building and in a building itself collapsing. In cases where the building itself collapses, the current owners or managers would have very little opportunity to prevent the harm. Hence, there seems to be little reason to hold them primarily liable. On the other hand, the original contractor and developer, the parties best situated to prevent catastrophic building collapse, are not included (even secondarily) as potentially liable persons here.

To remedy this and other issues in relation to personal injury liability under the GPCL, in 2003 the Supreme People’s Court issued an interpretation (“Interpretation”) that, among other things, clarified the application of GPCL Article 126. Specifically, Article 16 of the Interpretation clarified that, if the collapse is caused by design or construction defects, the responsible designer and contractor can also be held directly liable to injured parties.

Article 86 of the Tort Law deals only with collapse, providing:

”Where any building, structure or facility collapses, causing any harm to another person, the construction employer and contractor shall be liable jointly and severally. After making compensation, the construction employer or contractor shall be entitled to be reimbursed by other liable persons if any.

Where the collapse of any building, structure or facility, which causes any harm to another person, is attributed to any other liable person, the other liable person shall assume the tort liability.”

With this new Article 86, we have a new bright-line rule for primary liability in the case of construction collapse. Article 86 rests primary liability for building collapse squarely with the employer and contractor. In place of the previous rebuttable presumption of fault for current owners / managers, there is now strict liability for employers and contractors. We also have a broader and more objective rule of reason in relation to secondary or contributory liability, insofar as any other person contributing to the collapse, whether contemporaneous, upstream or downstream to the original employer/contractor, can also be held liable.

Although the Tort Law has changed the formal statutory liability rules in relation to collapse of construction works in China, in the final analysis, the formal and practical significance of this change may not be very great.

Formally, the Supreme People’s Court has long since clarified that the original employers and contractors could be liable in building collapse. Practically, those parties are the most obvious targets for liability in the event of building collapse, and under current practice the employer and contractor are already joined whenever possible, even without the new rule. But, since most developers in practice usually use special purpose vehicles (SPVs) to carry out their projects, dissolving the SPVs on completion, recourse to the original developing parties may be less available than the Tort Law seems to assume. It therefore appears that the contractors may well end up being the easiest targets at the end of the day.

Hence, while Article 86 represents a rationalization and refinement of the liability rules in this area, it will no doubt take much more than this marginal formal change to begin to reverse the deeply entrenched incentives causing the proliferation of Tofu Buildings in China.

Unsuccessful tenderers have had a raw deal in terms of remedies where they have been unsuccessful in winning a contract in circumstances where there has been a breach of the public procurement rules. Once the contract has been placed with a successful bidder, the only remedy available to the tenderer in the English courts (save in relation to framework contracts) has until now been damages.

On 20 December 2009 this position will be changed with the introduction of the Public Contracts (Amendment) Regulations 2009 (SI 2009 No 2992, “the 2009 Regulations”) which amend the Public Contracts Regulations 2006 (“the 2006 Regulations”) to give effect to amendments made by the new European Remedies Directive 2007/66/EC (“the Remedies Directive”).

The principal new remedy is that of a “declaration of ineffectiveness”. In broad terms, where a contract has been entered into (a) without being properly advertised, or (b) without respecting the standstill provisions (thereby depriving a person the opportunity of challenge) or (c) without respecting the rules on mini-competition under framework agreements or dynamic purchasing agreements, a court must make such a declaration. In addition a court will be required to fine the contracting authority in such circumstances and may award damages to an economic operator who has suffered consequential loss. Where a contract has not yet been entered into, existing remedies (such as setting aside, ordering amendment or the award of damages) are preserved.

The declaration operates prospectively but not retrospectively to invalidate the contract award. In deciding what orders to make, the court must not exercise its powers in any way which is inconsistent with provisions which the parties have agreed in advance for the purpose of regulating their mutual rights and obligations in the event of a declaration being made, unless and to the extent that the court considers that those provisions are an attempt to avoid ineffectiveness “by the back-door”.

A court will have a discretion not to make such a declaration where ‘overriding reasons relating to a general interest require that the effects of the contract should be maintained’. Economic interests in the effectiveness of the contract may be considered as overriding reasons ‘if in exceptional circumstances ineffectiveness would lead to disproportionate consequences’.

There are non-extendable time limits for applying for a declaration of ineffectiveness: 30 days where a contract award has been published which justifies the decision not to hold a tender or where the tenderers have been informed of the conclusion of the contract; otherwise 6 months. The commencement of proceedings to challenge a decision to award a contract will automatically require the contracting authority not to enter into the contract.

The second main change introduced by the Remedies Directive and implemented by the new Regulations is the harmonisation of “standstill” periods. The 2006 Regulations already provided for a 10 day standstill period between the date of dispatch of the contract award notice and entry into the contract following the ECJ’s decision in Alcatel. The 2009 Regulations make further provision for standstill periods: 10 days if the decision on contract award is sent by fax or e-mail; 15 days if sent by other means. An unsuccessful tenderer is entitled to be informed of the reasons for the decision.
Procedural issues relating to challenges to contract awards were considered during two interlocutory hearings in the important case of Amaryllis Ltd V HM Treasury earlier this year; [2009] EWHC 962 (May 2009) and [2009] EWHC 1666 (July 2009). In that case, breaches were alleged to have occurred in connection with the evaluation of tenders from framework contractors for the supply, delivery and installation of all types of furniture for use by the UK Public Sector Bodies. Damages of £11 million were claimed.
The first hearing involved an application to strike out the challenge for alleged non-compliance with notification and time limit provisions in the 2006 Regulations. Although the Authority had decided in March 2008 that the claimant had failed in the pre-qualification stage for an important lot within the range of potential contracts, the Judge decided that it had failed to provide a clear explanation of the reasons sufficient to enable the claimant to consider a challenge. It was not until July that the Authority had explained the reason why the claimant had been unsuccessful (in particular because of alleged failings in its environmental management). In these circumstances, Mr Justice Coulson decided that:
1. The notice of intention to challenge was compliant; it was sufficient in the light of the limited explanation of the reasons given at that time by the Authority (despite repeated requests);
2. The grounds for bringing the proceedings first arose when the specific breach of the Regulations actually occurred. The relevant period therefore commenced in this case when the decision to exclude the tenderer was made; it was not a case where the breach complained of defective tender documents where time might have run from the date of issue of such documents.
He therefore held that proceedings were commenced both promptly (given the Authority’s failure to give timely reasons) and in any event within the statutory time limit.
The second hearing concerned the issue of how to protect commercial confidentiality whilst ensuring fair process in the respective challenges. In Amaryllis, the essential complaint was that the Authority had an unstated and unfair preference for manufacturers rather than suppliers. A fair trial required a comparison of the Claimant’s Pre Qualification Questionnaire (PQQ) with the Defendant’s evaluation of the PQQs of other tenderers and those PQQs themselves. The Judge had to consider the applicable principles of Public Interest Immunity (PII) which raised the need to balance the public interest in non-disclosure with the public interest in the proper administration of justice. He decided on the facts that PII was not justified for the public authority’s documents. In relation to the commercial interests of the other tenderers he considered that this could be resolved by a mixture of redactions and substitutions. This was the same solution as that adopted by Mr Justice McCombe, in the earlier case of Lettings [2008] EWHC 1009 (at paragraph 18), who had added a step requiring the lawyers for each party to assess materiality on a confidential basis before any issue over disclosure would be addressed.

It seems safe to conclude that the various considerations set out in the 2009 Regulations bearing on the exercise of the new remedy and the complexity of the detailed provisions relating to time limits for commencing proceedings raise the prospect of interesting court challenges in the future.

As of January 1, 2010, licensing of engineering survey, design and construction activities, including developer (“zakazchik-zastroishchik”) functions will be completely abolished. Developers, engineers, designers and contractors will be allowed to continue such construction related activities under an SRO (self-regulating organization) mandate.

To explain what this means to organizations operating in the Russian Federation, an SRO mandate is a document issued by the SRO to a legal entity/individual entrepreneur in the form of a permit for a particular type or types of works (such as engineering surveys, design and construction). It is nevertheless worth noting that state regulation in the construction industry will continue by means of: the approval of design documentation by state expert assessment, technical requirements, the supervision of construction and related activities and state supervision of the SRO’s activities.

The failure to comply with the new requirements will result in an administrative fine or suspension of business for a certain period. The specifics are as follows:

– No more licenses are to be issued as of January 1, 2009 and licensing of construction related activities will be abolished from January 1, 2010.
– During the transition period (January 1, 2009 – January 1, 2010) licensed companies are allowed to carry out construction related activities either under an existing license or an SRO mandate.
– Licensing of construction related activities will be completely abolished from January 1, 2010. Thereafter, SRO certification in the form of an SRO mandate will be required to perform such activities. It is worth noting that a draft law proposing to prohibit the extension of the term of existing licenses has been passed by the RF State Duma in the first reading recently.
– Each engineering survey, design and construction (including developer functions) activities company will require an SRO mandate to be able to perform the works the SRO regulates from January 1, 2010.
– After January 1, 2010, conducting construction related activities without an SRO mandate will be illegal and will lead to the imposition of administrative fines of approximately USD 1,500, or in certain cases suspension of business for 90 days.

Given the above, engineers, designers, contractors and developers should consider either the creation of a new SRO, or joining as a member an existing SRO and obtaining the SRO mandate before January 1, 2010.

Your views and comments on how you believe this is going to affect the construction market in Russia would be welcomed. I would also be interested to hear how similar developments in different jurisdictions have played out in those markets.