CONTRACTUAL RISKS FOR INTERNATIONAL

CONSTRUCTION WORKS
BY GOURAV KUMAR LODHA
CASE CONSIDERED

 PARK TOWER (Dubai)

 Contractor – SPCL International
 Built up Area- 17,30,000 SqFt
 Won award for “Best Mixed Use
Development In The World” at
International Property Award
FACTORS THAT AFFECT INTERNATIONAL PROJECTS

Risk Issue / Consequence

Business Case/ Economic legal and economic barriers to entry
Feasibility
Taxes Tax regime and tax consequences in the home jurisdiction
Market conditions, standards saturation of the market and available margins, availability
and of high quality professional support and
practices subcontractors/suppliers
Insurance Insurance terms or costs in the foreign jurisdiction may less
favourable than in the home jurisdiction.
Dispute resolution and Foreign party may have an expectation with respect to the
enforcement dispute resolution mechanism to be incorporated into the
contract
National employment In some markets, local conditions of contract or local law
requires a
specific proportion of nationals to be employed
FACTORS THAT AFFECT INTERNATIONAL PROJECTS
Risk
Political stability
Social stability
Government relationships
Regional traditions and business
practices
Cultural and religious issues
Governing law
Issue / Consequence
Major implications for PPP projects
Social unrest and violence constitutes a genuine
jurisdictional risk
Poor government relationships
Failure to understand or recognise local practices
Failure to recognise and be sensitive to local cultural and
religious issues
Some local procurers (particularly governments) will
require the national law to govern the contract
CLASSIFICATIONS OF FACTORS INTO CONTRACTUAL RISKS

S No Risk Factors

1 Site risk Inclement whether, Unforeseen site condition

2 Project related Buildability issues, Availability of key inputs, Ability of

risk subcontractors
3 Pricing risk Taxes, Insurances, Market conditions and Standard practices

4 External risk Political stability, Social stability, Government relationships,

Regional traditions, Governing law

5 Finance related Interest rates, taxes, Business case / Economic feasibility,

risk Currency
RISK PARAMETER TABLE

Points Impact Likelihood

1-3 Minor Low

4-7 Moderate Medium

8-10 Critical High

IMPACT AND LIKELIHOOD OF IDENTIFIED RISKS

Risk Factor Impact Likelihood

A Site risk 5 3 15

B Project related risk 6 5 30

C Pricing risk 7 7 49

D External risk 9 9 81

E Finance related risk 7 9 63

RISK MATRIX

Likelihood
Imp 10 20 30 40 50 60 70 80 90 100
act 9 18 27 36 45 54 63 72 81(D) 90
8 16 24 32 40 48 56 64 72 80
7 14 21 28 35 42 49(C) 56 63(E) 70
6 12 18 24 30(B) 36 42 48 54 60
5 10 15(A) 20 25 30 35 40 45 50
4 8 12 16 20 24 28 32 36 40
3 6 9 12 15 18 21 24 27 30
2 4 6 8 10 12 14 16 18 20
1 2 3 4 5 6 7 8 9 10

60-100 HIGH 20-59 MEDIUM 1-19

S No. Risk Factor Priority Mitigation Measures

1 Site risk Low Proper feasibility analysis, taking

recommendations from local consultants
2 Project related risk Medium Risk transfer to subcontractor

3 Pricing risk Medium Lessons learned from previous projects, Adequate

pricing considering risks
4 External risk High Joint Venturing, Partnering

5 Finance related risk High Insurance

THANK YOU