Choice of contracting approach
(Правовое руководство по составлению строительных контрактов)
A purchaser who intends to contract for the construction of industrial works has a choice of entering into a single contract with a single enterprise or a group of enterprises, which will be responsible for performing all obligations needed for the completion of the construction, or dividing the obligations among several parties entering into an individual contract with each party. In addition, the purchaser may construct a portion of the works. Which technique he adopts may depend on several factors (e.g., whether the technology to be used in the works is the exclusive property of a single supplier, or whether the purchaser has the capability to co-ordinate the performances of several parties). Within each of these techniques, there are different possible approaches to contracting (paragraphs 1 to 3).
The contractual approach whereby a single contractor is engaged to perfom all obligations needed for the completion of the entire works is referred to in the Guide as the "turnkey contract approach". Where competitive tenders to construct the works are solicited from potential turnkey contractors, each tender will be based on the individual design of the tendering contractor, and the purchaser will be able to choose the design which is most responsive to his requirements. However, comparison of the different designs may sometimes be difficult. A turnkey contractor may sometimes be motivated more by a desire to offer an attractive price than by the need to ensure the durability, reliability and ease of maintenance of the works. On the other hand he usually has no incentive to over-design the works (paragraphs 4 to 6).
In some cases, a single contractor, in addition to assuming the obligations of a turnkey contractor, may undertake to ensure that after the works is completed it can be operated and achieve agreed production targets by the purchaser's own personnel, using raw materials and other inputs specified in the contract. This approach is referred to in this Guide as the "product-in-hand contract approach" (paragraph 7).
Since a single contractor bears a high degree of risk in performing all the obligations needed for the completion of the works, and must incur costs to guard against this risk, the total price of the works may be lower if several contractors are engaged than if a single contractor is engaged (paragraph 8).
The construction of a large-scale industrial works may be beyond the technical or financial means of a single enterprise. Accordingly, the purchaser may contemplate entering a contract with a group of enterprises able, jointly, to provide the necessary resources and expertise with which to construct the works. One means of doing so is for the purchaser to enter a contract with a single enterprise which subcontracts for the performance of certain of its obligations under the works contract (paragraphs 9 and 10). Another approach is for the purchaser to enter a contract with a group of enterprises which has combined to perform the obligations of the contractor. It may be advisable for the contract to describe the responsibilities and liabilities undertaken by such a group or its members in a clear manner to avoid implying certain legal consequences which may arise under the applicable law by the use of a particular term (paragraph 11).
Depending on whether or not the group takes the form of an independent legal entity, different considerations will apply. If the group has not integrated into an independent entity, it is desirable for the contract to resolve the question of whether each member of the group is to be liable for the performance of the obligations of all of the members or only of those which that member is to perform. It may also be desirable for the contract to deal with other issues arising in the use of such an arrangement (paragraphs 12 to 16).
Where the purchaser divides all the obligations needed for the completion of the works among two or more parties, he must co-ordinate the scope and the time of the performances under each contract so as to achieve his construction targets. An approach involving several contracts may facilitate the use by a purchaser of local contractors to construct portions of the works. The way in which the construction is to be apportioned among the various parties will depend upon the nature and size of the works and the national policy followed by the country of the purchaser (paragraphs 17 to 20).
The risks borne by the purchaser in connection with the co-ordination of several contracts could be considerably reduced by employing a consulting engineer to advise the purchaser on how to achieve a proper co-ordination. Alternatively, the purchaser may engage a construction manager with a wider scope of responsibility. Another technique is to have one of the contractors assume responsibility for some part of the co-ordination (paragraphs 21 to 23).
The purchaser may also reduce the risks connected with engaging more than one contractor by providing that one of the contractors is to be responsible for the transfer of the technology, the supply of the design for the entire works and the construction of a vital portion of the works. This contractor may also be responsible for handing over to the purchaser at an agreed time completed works which are capable of operating in accordance with the contract, unless he is prevented from doing so by the failure of another party engaged by the purchaser (paragraph 24). Another approach available to the purchaser is to enter into a works contract with a single contractor for the construction of the entire works in accordance with technology and a design supplied to that contractor (paragraph 25).
The construction of the works may be effected in the context of a joint venture entered into between the contractor and the purchaser. A joint venture has certain advantages and disadvantages for each party (paragraphs 26 to 29). The joint venture may be based on a variety of legal relationships. When creating a joint venture, the parties should take into account the relevant rules of the applicable law, which are often mandatory (paragraphs 30 and 31).