This document discusses the consulting engineering industry and use of FIDIC forms of contract in Ukraine. It notes that while a handful of firms are capable of meeting FIDIC standards, there are issues with qualifications, expertise, and awareness. FIDIC forms see limited use driven by international lenders, with the Red and Yellow Books most common. There is a lack of guidance, case law precedents, and an established operational environment. Challenges include understanding risk allocation, resolving disputes, and developing the consulting engineering industry and contract management culture in Ukraine.
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Consulting Engineering Industry: Current Reality and Trends in Ukraine
1. Consulting Engineering Industry and
Application of FIDIC Forms of Contract :
The Ukrainian Dimension at a Glance
Svitlana Teush, PhD
Senior Associate
Arzinger Law Office, Kyiv , Ukraine
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
2. Consulting Engineering Industry:
Current Reality and Trends
2
A handful of full-fledged consulting engineers capable of
meeting FIDIC standards
Trust, qualification, expertise and awareness issues
Nascent institutionalization and self-governance of the
engineering industry
Targeted alignment with the international standards and
practices
Reforms in transition - extreme agility of performers in
demand: New design and construction standards, energy
efficiency and sustainability agenda, modifications in service
provision and cooperation patterns, etc.
Peculiarities of the local association of consulting engineers
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
3. Use of FIDIC forms of contract in Ukraine
3
Limited and cautious use of FIDIC forms of contract, primarily,
in infrastructural projects
International institutional lenders (MDB) act as the main
driver
Red Book and Yellow Book are most commonly used
Lack of clear guidance, explanatory notes, case law/
established court precedents
Lack of established and demanding operational environment
(a handuful of infrastructural projects, PPPs underused)
Practical difficulties at the implementation stage and during
audits by controlling authorities, in courts: literacy campaign
in need
Engineer’s role and functions are not properly understood
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
4. Use of FIDIC forms of contract in Ukraine. – Cntd.
4
Mandatory rules vs. FIDIC conditions of contract (where
divergent). Civil law issues
Special legislative limitations re projects with public
authorities/public finance involved: e.g., standards of supporting
documents, special approval procedures, restrictions on contract amendments, etc.
Lack of the ready and tested adjustment techniques and of
assessment of the affordable degree of adjustments
Language barrier
Comprehension and terminology issues
Mentality and custom
Contract administration
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
5. Risks Allocation and Management
5
No ramified risk allocation patterns established in legal
concept
“Dressing” solutions suggested or even imposed for certain
generalized categories of claims / under categories of cases,
which may be invoked where a contract is silent (e.g., a material
change in circumstances, force majeure, etc.)
Case-by-case approach to pre-assess a claim or procedure in
light of how applicable rules and conditions of contract
compare
Intermittent “Suspend-terminate” solutions suggested by law:
how does it compare with contract procedures?
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
6. Risks Allocation and Management. – Cntd.
6
EXAMPLES:
Claims regarding the time of works’ performance
§ If the Contractor fails to commence works in a timely manner or performs it so
slowly that it becomes clear that it cannot be performed in a timely manner, the
Employer has the right to terminate the contract and to claim damages.
If, during performance of work, it becomes obvious that the work will not be
properly performed, the Employer has the right to appoint the defects remedial term
and, in case of non-compliance by the Contractor, to terminate the contract and
claim damages or appoint a third party to perform works at the Contractor’s costs.
(Art. 849 of Civil Code of Ukraine)
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
7. Risks Allocation and Management. – Cntd.
7
Claims regarding the Employer’s instructions or supply of
materials by the Employer
§ If the use of improper or faulty materials, or compliance with the Employer’s
instructions presents danger to life or health, or entails a breach of ecological,
sanitary rules, security or other requirements , the Contractor shall be obliged to
terminate the contract, while retaining the entitlement to claim damages.
(Art. 848 of the Civil Code of Ukraine)
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
8. Risks Allocation and Management. – Cntd.
8
Claims regarding payment of additional works caused by design
amendment
§ The Employer has the right to amend design documentation before
commencement or during performance of works, provided that additional works
caused by such amendments will not exceed 10% of the cost estimate and will not
change the nature of works. Should the cost of such additional works exceed 10%
of the cost estimate, such amendments are subject to agreement with the Contractor.
The Contractor shall have the right to terminate the contract and claim damages.
(Art. 878 of the Civil Code of Ukraine)
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
9. Construction Disputes Resolution:
Current Approaches and Trends
9
Litigation in national courts prevails over international arbitration. Yet:
growing preference for arbitration in international commercial disputes (ICC,
LCIA, VIAC etc.)
• Institutional arbitration in Ukraine:
– International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and
Industry
– Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry
Complex and protracted proceedings
Judges/arbitrators lack expert knowledge and relevant practice
No institutions specialized in handling construction disputes
Technical expert examination is often an issue
Lack of relevant “case-law” / well-established precedents
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
10. Construction Disputes Resolution:
Current Approaches and Trends. – Cntd.
10
Mediation:
Rudimentary stage of development
Not prohibited, yet not commonly used
No special legislation on mediation
Enforceability issue
Draft bills on mediation registered in Parliament in 2013
Mediation promotion and advocacy (Ukrainian Mediation Center)
Investment treaty arbitration (ICSID, BIT ) can be invoked in a
dispute against the State /state authorities:
e.g., on grounds of expropriation or violation of FIT (fair and equitable
treatment standards)
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
11. CASE STUDY: Transport Infrastructure project
Based on „Yellow Book“ (Design-Build delivery method), MBR-
funded
Engineer‘s liability and warranties
Coherence and correlation between different instruments is an
issue
Delay damages:
Substantiation and enforceability issues
Security instruments:
Efficiency and enforceability issues
Engineer‘s determination preserved subject to efficiency and
enforceability issues. DAB deleted. Disputes to be resolved by local
commercial courts.
11FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
12. CASE STUDY: Transport Infrastructure project. - Cntd.
Dispute resolution & claim management:
- DAB provisions do not apply
- Engineer’s determination is allowed. Practical enforcement
difficulties may be encountered
- Carve-outs:
court vs arbitration
differentiating nature of the matter of claim
pre-qualification of the claim by agreement of parties
- Inaccurate designation of the arbitration institution:
"European Chamber of Commerce, Paris" vs “International
Chamber of Commerce, Paris".
12FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
13. CASE STUDY: Transport Infrastructure project. - Cntd.
13
FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015
Subject to additional provisions, if
any, set forth in the Special
Conditions, the Consultant’s liability
under this Contract shall be as
provided by the Applicable Law.
(English language version)
The Consultant shall bear property
liability under this Agreement in
accordance with the Applicable Law if
provided by the additional provisions,
as may be set forth in the Special
Conditions
(Russian language version,
when closely translated into
English)
Translation Discrepancies Exemplified
by the Provision in the Consultancy Agreement
14. Challenges and Tasks Faced
Development and institutionalization of the consulting
engineering industry
Self-governance; reviving/reinventing the efficient national
association
Awareness building, training local players to international
industry standards and practices, raising contract management
culture
„Loosening“ law to better accommodate FIDIC forms of
contract; clear guidance as to their correlation with law
Official translation of contract forms, application guidance,
literacy tools
Implementing and potensializing the efficiency of DABs,
mediation and other ADR vehicles as well as claim settlement
tools
14FIDIC-ARIC-EFCA Regional Infrastructure Conference, Bucharest, March, 2015