Before you jet off: Contracting abroad

As contractors venture abroad in search of markets that are riding out the recession better than Britain, they will encounter a range of problems. Here are some of the legal issues contractors working abroad for the first time should be aware of.

• Payment avoidance or delay

Contractors experience the same kind of payment problems in other countries that they do in the UK. The difference is that not everywhere has as quick and reliable a dispute resolution system as the one here.

Contractors should make sure that their contracts set out workable payment mechanisms and adequate methods of recourse, in case the employer does not adhere to these. They should also consider the use of payment bonds or guarantees that are triggered if payment is not received within the stipulated timeframe.

If the employer has a parent company, always insist on aguarantee from this body, especially if the employer has been formed solely to complete that particular project.

• Rights to determine or suspend 

It is vital that the contract contains enforceable rights to suspend part or all of the work, and accompanying rights to claim reasonable costs and expenses and extensions of time for the period of suspension. There should also be a right to determine the contract, exercisable on a reasonably short notice period, for failure to make payment and for other significant breaches.

• Conditional payment clauses

Pay-when-paid and pay-when-certified clauses should be avoided, as these make contractors dependent on the payer’s funder.

• Disputes

Statutory adjudication is only available in the UK, Australia, New Zealand and Singapore. Although parties can enter into contractual adjudication arrangements, problems may arise with enforcement.

Any award is only worth pursuing if the paying party has sufficient assets in the relevant area

Often, the best way for contractors to obtain a binding determination is to use local courts or arbitration, but in some countries, courts can be unreliable, partial or slow, and rules may seem ambiguous. Also, contractors should be aware that not all court judgments are enforceable overseas. They should consider incorporating arbitration clauses into contracts, which bind the parties to submit disputes to a recognised procedure. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1958 permitted enforcement of arbitration awards through a overseas courts.

Of course, any judgement or award is only worth pursuing if the paying party has sufficient assets in the relevant area of jurisdiction. Also ensure the system of law that applies to the contract in the event of a dispute and the jurisdiction of the court or tribunal is not left to chance – this is a separate issue from choosing whether to arbitrate or litigate.

• Registration rules and licences

Almost all countries have rules that contractors have to comply with before they begin work. In Singapore, the US and Malaysia, the system is quick, well regulated and forms can be filled in online. In Russia, on the other hand, there are more than 50 procedures to comply with and getting the green light for a medium-sized project can take up to two years. India and China often require local nationals to take a significant part of the leadership of the project.

Rules governing the hiring and firing local workers can be employer-friendly (Australia and Denmark) or employee-friendly (Venezuela and Bolivia). There may also be laws banning foreigners from being on site or directing site operations, or drawings being issued unless they have been approved by a local engineer. Individuals or companies may face prosecution if they fail to comply.

• Local laws 

Contractors should always seek advice about what local laws may override terms in contracts. Subcontractors may, for example, have rights to keep goods even if they have not paid for them, which would enable them to retrieve these goods even if there is a bona fide dispute over payment.

Local laws may also impose onerous responsibilities on contractors, such as the duty to secure local authority consent. They may also have an unexpected effect on standard contractual provisions, such as liquidated damages.

As well as the legal issues, there are of course other strategic, practical and financial considerations that are equally important to consider. The short point is that while working abroad may be a good way to bolster the books, it is unwise to do so until you have read the manual.

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