For those entering into construction contracts, the allocation of risk and liability is of paramount importance. Clear risk allocation facilitates effective contract management and helps avoid the (often considerable) delay and expense associated with protracted contractual disputes. In the first edition of 2018 we refocus on risk allocation and its role in avoiding disputes in construction contracts. This is achieved with a specific lens, through several articles considering risk allocation in a number of civil and common law jurisdictions, as well as more broadly, through articles assessing the appropriateness of prescribed contract forms with a view to minimising disputes.

This journey begins with Alexandre Aroeira Salles and Mariana Barbosa Miraglia’s “Managing Legal Risk to Minimise Disputes: Design Risk, Unforeseeable Ground Conditions and Time for Completion – The Brazilian Law Overview”. While the regulations surrounding both public and private systems of construction law in Brazil are fairly prescriptive, Salles and Miragalia explain that in the case of private contracts these can largely be derogated from, allowing freedom of contract and risk allocation in a contract of works. However, parties should be aware of the non-binding rules set out in the civil code, as these apply where the parties have not specifically dealt with risk. With respect to public contracts there is less flexibility, given the extraordinary power granted to the Public Administration to modify and even terminate contracts in the public interest. In each case, in order to minimise disputes, regard should be had to the prescribed terms set out in Brazilian Civil Law before entering construction contracts in this jurisdiction.

Continuing this emphasis on party vigilance, Tony Dymond’s “Design Adequacy, is it warranted?” presents a comparative analysis of the UK and US treatment of risk and liability, specifically in relation to design and build contracts. The August 2017 UK case of MT Hojgaard A/S v E.On Climate and Renewables UK Robin Rigg East Ltd and another (“Robin Rigg”) has enlivened debate over liability for performance where there are inconsistent specifications from the owner. The Robin Rigg decision favoured the owner, and held the contractor to their warranty of performance. Dymond contrasts this with the established US Spearin Doctrine, which intervenes to protect contractors from prescribed design specifications that could frustrate the contract or make performance impossible. The US doctrine could increase the likelihood of disputes and litigation in this area. To the contrary, the UK approach may impose ostensibly harsh outcomes in some cases, but does seek to uphold the risk allocation intended by the parties. The Robin Rigg decision ultimately serves as a reminder for contracting parties of the importance of vigilance in allocating risk in situations of design specification and warranty of performance.

Turning back the clock slightly to June 2017, and the Institute of Civil Engineers produced the latest edition of the standard form engineering contract: NEC4 “Engineering and Construction Contract”. Mathias Fabich, Nabeel Khokhar, Ian Cowling and Stefan Ciufu-Hayward of European International Contractors evaluate the NEC4’s evolution to become more attractive for use in the international construction market. The authors consider how these updates address what the EIC consider to be the crucial components of international construction contracts. Generally, the NEC4 sets out a framework of balanced risk and liability, and good management practice with a general goal of dispute avoidance. There is particular consideration of the prescriptive approach to identifying compensation and weather events, as opposed to the more discretionary approach adopted by the FIDIC suite. While the authors note that the NEC4 is founded upon ideals of mutual trust and cooperation and is fit for international use, the question remains whether its intent can survive amendment by the actors in the international construction market.

Jeremy Glover’s article “Understanding and Managing Design Risk under Common Law Jurisdictions: Managing Legal Risk to Minimise Disputes” returns us to the Robbin Rigg case and picks up on the questions raised by Dymond in relation to the allocation of risk in the design process. Glover looks at the Robin Rigg case in the context of the movement of UK courts in 2017. He considers the interaction of essential design obligations, being use of reasonable skill and care and the obligation as to fitness for purpose. The decision in Robin Rigg made clear that where a contractor warrants a specific result they will be held liable for non-performance, regardless of whether the inability to perform was a result of the owners’ specifications. Glover notes that this forms part of a trend in UK decisions across 2017, which has seen the interpretive focus shift to promote the primacy of language. It seems that in the UK it would now take “exceptional circumstances” for considerations of commerciality to displace the natural meaning of the words used by contracting parties.

Antoine Smiley and Raeesa Rawal’s “Locked Behind Time Bars” considers the strict approach of Australian common law to the enforcement of time bars. While pious adherence to upholding freedom of contract ensures certainty, this article engages in a normative discussion of reform to avoid absurd results. Smiley and Rawal posit that strict enforcement is irrational where failure to comply does not undermine the commercial purpose of the provision, and leads only to the enrichment of one party at the cost of another. Rather than simply pursuing certainty and the avoidance of disputes, they seek substantive fairness in their proposed reform. The risk, of course, is that this increased flexibility may lead to increased friction between parties, and more disputes proceeding to litigation where there is an increased possibility of success.

The final two articles focus on a particular target, considering risk and liability in a civil law context. “Design Risk, Unforeseeable Ground Conditions and Time for Completion under the UAE and Qatar Civil Codes” by Bill Smith provides an exploration of how liability is assigned in these GCC states. While contractors operating in foreign jurisdictions may seek certainty through electing their own national law, or that of a neutral third state to govern contracts, parties should always be aware of any mandatory rules of the state in which they are operating. In both UAE and Qatar, the contract between the parties is paramount and will be enforced according to its terms. Smith provides the reader with a comprehensive overview of the default provisions of each state’s regulations, highlighting in particular the mandatory rule of decennial liability, and identifying areas where law and the court’s approach to its application are uncertain.

The uncertain influence of domestic law on international contracts is also prevalent in Ukraine, where the construction sector is in a state of development and reform. The final article by Dr Svitlana Teush and Dr Lukas Klee, “Legal Aspects of Using FIDIC Contracts in International Construction Projects in Ukraine”, reviews the state of Ukrainian construction law. Although on an upward trajectory, it still faces challenges in terms of its domestic codes meeting the requirements of international construction contracts, or allowing the effective use of international contract forms like FIDIC. The broadly stated terms of the Ukrainian Civil Code and regulations, make the reliable enforcement of FIDIC contracts uncertain, particularly as court practice on the use of such contracts is limited. Even where parties elect a different law to govern the contract, it is often difficult to clearly discern mandatory rules, and when they will be applied. Whilst legislative developments are making construction in this jurisdiction more attractive, there are still barriers to ensuring the proper interpretation and application of FIDIC contracts in Ukraine.