On 20 February 2013 conference “Making a Success out of a Construction Project: International FIDIC Standards and their Implementation in Ukraine” was held in Kyiv, organized by Arzinger Law Office with support of the International Federation of Consulting Engineers (FIDIC). The conference was attended by more than 100 participants, including representatives of Ukrainian and international construction, development and engineering companies, consultants, lawyers, investment experts, bankers and representatives from international financial establishments. 

Timur Bondaryev, attorney-at-law, Managing Partner, Head of the Real Estate and Construction Practice at Arzinger, welcomed guests and participants of the conference. “Each successful construction project is based on a balanced and carefully drafted contract which regulates different, sometimes even contradictory, needs and interests of the parties. Arzinger, as a law firm with vast experience and expertise in real estate and construction, understands more than anyone the importance and necessity of such contracts. This is the reason why we organized this conference and invited FIDIC Managing Director and representatives from international companies working with FIDIC contracts to Ukraine so they can speak to the Ukrainian market players about best international FIDIC practice, experience in implementation of FIDIC contracts and discuss possibilities of their implementation in Ukraine and their eventual adjustment”, noted Mr Bondaryev. 

FIDIC was introduced by a special guest of the conference – Enrico Vinc, Managing Director of the International Federation of Consulting Engineers (FIDIC). FIDIC accumulates best practices of construction business and offers risk allocation instruments which comply with international market standards and are confirmed in practice by implementation of a number of major construction projects all over the world, including with international financing. The Federation closely follows all trends and events in the industry and evolves constantly in order to ensure that its standards comply with daily needs and requirements which engineers and their partners face during implementation of construction projects. Moreover, Mr Vinc demonstrated FIDIC forms of contract, so called “FIDIC Rainbow Suite” – Red, Green, Yellow and Silver Books.

In his turn, Peter Blackmore, partner at Pinsent Masons (London), spoke in detail about each book and how to make the right choice from the menu of FIDIC forms of contact. Thus, Red Book determines conditions of a construction contract, Yellow – supply of equipment, design and construction. Silver Book contains conditions for EPC contracts and turnkey projects while Gold Book deals with FIDIC design, build and operate projects. Green Book is a short form contract. There are also Blue Book (contract for dredging and reclamation works), White Book (client/consultant model services agreement) as well as MDB/FIDIC contracts, subcontract and other forms of contracts.

Kaj Möller, President & Director Infrastructure at SWECO International AB, Member of the FIDIC Executive Committee, closed the first session of the conference with his speech “Role of an Independent

Engineer. FIDIC Contracts in International Projects.” In particular, he noted that it is crucially important for engineers to remain independent in order to avoid conflict of interests because they are involved in many parts of the project on its different stages and work with all parties to the contract.

Svitlana Teush, Senior Associate at Arzinger, Dr. iur., and Volodymyr Grabchak, Attorney-at-Law, Associate, L.L.M., opened second session of the conference with a report on practical aspects of application of FIDIC standard forms of contract in Ukraine. Speakers covered usual problems caused by insufficient understanding of terms, principles and mechanisms of FIDIC contracts which is aggravated by lack of official translations into Ukrainian language; violation of structural connections of their parts and the balance of liability and risks allocation in case of amendments; non-compliance with imperative requirements of the Ukrainian law; foreign consulting engineers lacking knowledge of local requirements and practices. Moreover, it is not quite helpful for the establishment of FIDIC contracts in Ukraine that they are of Anglo-Saxon origin, that there is no institute of consulting engineers and traditions of an independent expert control and self-regulation of the engineering industry in Ukraine, that the civil relations are overregulated with imperative norms, that participants are not willing to observe the strict contract discipline on which the whole system of counteraction between parties to FIDIC contracts is based. “Despite all advantages of FIDIC forms of contract we have to acknowledge that to date they are often applied in Ukraine because international investors require so, but such application is not always rational or correct”, noted Svitlana Teush.

Volodymyr Grabchak spoke about price calculation and adjustment, transfer and acceptance and completion of works. Co-speakers advised the audience on the preferable algorithm of actions for contract drafting based on FIDIC forms of contract taking into account specifics of the Ukrainian law. It was noted that despite sufficient flexibility of contract forms in respect to adaptation of Special Terms “any attempts to amend FIDIC contracts shall be carefully evaluated regarding consequences of such amendments for the contract… Behind each provision there is a certain concept that shall be understood”.

Valery Levko, Director at Tebodin Ukraine CFI, spoke about the role of an engineer in contract management and construction under FIDIC forms. There is no clear division between powers and obligations of parties to a construction project (employer, designer, and contractor) or an exhaustive unified determination of engineer’s functions in the Ukrainian legislation. Role of an engineer in a project is optional and purposeful, and his powers and functions are determined by the employer. A standard construction agreement used by Ukrainian developers determines rights and obligation of the parties only and does not set forth a possibility to resolve disputes between parties out of economic courts or an arbitration institution. In its turn, FIDIC determines an engineer as an undertaking of independent, impartial, highly professional and experienced experts which is selected (appointed) by the employer for purposes of designing the construction object or management of construction works, including designer choice; organization and conduction of contract procurement; construction management; technical and designer supervision; performance of functions of an independent arbiter by resolution of disputes between the parties.

Shy Jackson, Partner at Pinsent Masons (London), spoke about management of infrastructure projects from the English perspective. After analysis of construction projects in Great Britain, its construction legislation and approaches to implementation of infrastructure projects Mr Jackson summarized that FIDIC may be successfully used in order to find new ways to procure projects, to reduce the number of disputes and to improve collaboration which, in its turn, will result in more successful projects.

Any construction project is connected to a risk that parties may have claims against each other resulting in subsequent dispute resolution. FIDIC has a special procedure for dispute resolution which is well-known to the international community but is quite surprising for Ukraine. Likas Klee, Head of Legal, Metrostav Construction (Prague), spoke about allocation of risks and consideration of claims under FIDIC contracts. The goal of an optimal allocation of risk is to minimize the total cost of risk on a project, not necessarily the costs to each party separately, commented he. FIDIC contracts are based on the principal of risk decentralization, i.e. that risks are allocated to the party best able to manage them. If one party is responsible for the risk, the other party is entitled, as a rule, to require additional payment or time for project completion shall such risk arise. 

In his report “Dispute Avoidance and Resolution under FIDIC Rules and Procedure: Polish Experience” Maciej Jamka, Managing Partner, and Rafal Morek, Partner at K&L Gates (Warsaw), stressed out that FIDIC has a multi-level approach to dispute resolution (by escalation): Engineer, Dispute Adjudication Board / Mediation, Arbitration / Litigation. Dispute boards are specifically designed and developed for large construction contracts and are known under different names, such as Dispute Review Boards, Dispute Adjunction Boards, Combined Dispute Boards etc. They comprise impartial experts and support parties in reaching consensus, provide their recommendations and render decisions. If the parties fail to resolve the issue in an amicable agreement or if either party does not fulfil the decision of the Board, an arbitration procedure may commence.

Volodymyr Yaremko, Associate, West-Ukrainian Branch Office of Arzinger, presented his report on resolution of construction disputes and gave examples from court practice on successful application of FIDIC approaches. Construction disputes are very complex, require early resolution, have numerous angles, are subject to special regulation and often involve the authorities. Typical construction disputes are contract disputes, regress and interconnected claims, disputes with state and self-government authorities, and investment disputes. They may be resolved by means of negotiations, involvement of an engineer or a dispute adjudication board, arbitration or court proceedings.  

“In each case the most appropriate and effective mechanism for dispute resolution shall be found. Thus, advantage of litigation is injunction, discovery of documents and mandatory enforcement of the court decision. Arbitration, in its turn, offers impartiality, standards for evidence presentation, confidentiality and procedural flexibility”, commented Volodymyr Yaremko. 

Then the word was given to representatives of international financial institutions – Evgeny Smirnov, Senior Procurement Specialist, EBRD, London, and Irina Shmeleva, Procurement Officer, World Bank, Transaction and Quality Department, Europe and Central Asia (Kyiv). They spoke about principles and rules of procurement in EBRD and World Bank and how these institutions apply FIDIC contracts. Thus, EBRD sees FIDIC contracts as well balanced, easily adaptable to conditions in a specific country and applicable for a wide range of projects. Still, they require localization as some of their conditions contradict with national legislation, local contractors are not always familiar with FIDIC and sometimes projects use incorrect FIDIC forms of contract. 

The final report at the conference was held by Inna Vakhovych, Dr. iur., assistant professor, Head of Economics and Construction Organization Department at the Scientific and Research Institute of Construction Manufacturing at the Ministry of Regional Development, Construction, Housing and Utility Services of Ukraine. She focused on problematic aspects of implementation of infrastructure projects financed by international financial institutions. In particular, she drew attention to inconsistency of forms of reporting documents, approaches to provision of information on the cost of works (Ukrainian and based on FIDIC forms of contract). Thus, it is mandatory in Ukraine to provide information on cost positions at each stage of the settlement while FIDIC contracts allow stating the cost only once in the offer. 

Closing the conference Timur Bondaryev thanked all participants and speakers of the conference once again and summed up the results of the event: “Implementation of FIDIC standards in Ukraine might positively contribute to improvement of mutual understanding between parties to construction projects (including, infrastructure projects implemented within public-private partnership or other forms of collaboration between the public and the private sector), establishment of safer conditions in order to receive financing from international investors, which, in result, will improve Ukraine’s  investment image on the global level and rehabilitate the construction market in the country, in particular, and the Ukrainian economy, in general.   

Due to the outmost urgency of this topic Arzinger intends to organize such events on the permanent basis. Even now, considering the number of participants, we see that this topic is quite interesting and requires additional discussion”.

In his turn, Enrico Vinc reassured that FIDIC would be glad to support this initiative of Arzinger to carry out similar events in the future.