Articles

Brazil 2014 – Are you ready?

Business Brief April/May 2010
By Zarina Kellerman & Natasha Jansen

As construction for the 2010 Soccer World Cup in South Africa draws to a close, all eyes in the construction industry move to Brazil.

With 12 host cities, Brazil has to construct four new stadia and upgrade eight of their existing stadia for the 2014 Soccer World Cup. In addition to the construction and remodelling of its stadia, Brazil is also gearing up for major upgrades to its basic infrastructure, including its airports and roads, and the construction of a new high speed railroad.

Brazil would need to look to construction companies the world over for assistance. In international construction projects of this nature, one of the key factors to be considered by any country is whether the construction agreement will be custom made in accordance with the laws and contractual principles of that country or whether an international standard form contract is more desirable.

While local contracts have their advantages and disadvantages, international standard form contracts have their own: they are widely used, recognised and accepted in the global construction industry with employers, contractors and other parties involved in the implementation of any project, aware of the contents of the contract and the standard obligations that are expected of them. Parties will be able to give considerable input during the negotiation phase of the contract in regard to what provisions of the contract need to be adapted or amended to bring the contract in line with the specific requirements and unique characteristics of the project.

Standard form contracts have been drafted in accordance with Industry Best Practice and in a manner that is, as far as possible, clear and reasonable for all contracting parties, with the allocation of risk being as equally distributed among the parties as possible but more interestingly, however, is that they have been drafted on a neutral jurisdiction basis, to enable them to be applied and understood globally.

Regardless of whether the FIDIC or NEC are used, the question then arises whether these international standard form contracts are sufficient as they stand, without amendment. It is our view, based on our experience, that they are not sufficient as they stand, without any amendment. In this regard, attention should be given to compensation events, or contractors claims; force majeure; possible early warning systems and dispute resolution provisions. The standard form contract must be adapted in order to cater for the specific project's contractual needs. 

Whether the choice is FIDIC or NEC, Brazil would do well to look to South African construction companies for assistance, particularly given the job well done in having our own stadia complete ahead of time, against many odds.

Briefly, these are the differences between the FIDIC Red Book (FIDIC) and the NEC3 Engineering and Construction Contract (NEC):

FICIC   
1.    More conventional with due emphasis on the contractual rights and obligations of the parties and the consequences of non-compliance.

2.    Obligations and consequences of non-compliance are clearly set out which reduces the risk of disputes arising out of the interpretation of the contract.

3.    Contractor claims are dealt with in very broad terms.

4.    Dedicated force majeure events clause and a non-exhaustive list of exceptional events or circumstances that may qualify as force majeure events.

5.    Provides for a three tiered dispute resolution process.
   
NEC
1.    More emphasis on creating and maintaining a good and sustainable relationship between the parties based on mutual trust and co-operation.

2.    Worded in much simpler terms which sometimes fails to clearly set out precisely which party bears which obligation, and what sanctions (if any) will be imposed for failure to comply with the provisions of that contract.

3.    Delays and variations are dealt with under “compensation events” which are additional events that occur during the project that generally have a time and/or cost implication for the contractor, clearly set out as to what qualifies as a compensation event and the procedures applicable in notifying, quoting, assessing and implementing these events.

4.    Force majeure events are provided for under the heading of “compensation events” and there is no specific reference to the event being a force majeure event. Qualification of a force majeure generally refers to events that neither party can prevent or predict with any certainty, and that stop the contractor from completing the works timeously, or at all.

5.    Dispute resolution - contains an early warning provision, which is unique to this contract, and a two tiered dispute resolution procedure.


Talk to a specialist

Natasha Jansen

Senior Associate
011 523 6173
E-mail Natasha Jansen