In the last five years, there has been significant growth in the real estate and construction industry in Cambodia with the development of many high-rise buildings and real estate complexes, including condominiums, offices, hotels and commercial centers. This year is no different with 1,523 projects approved according to the Ministry of Land Management, Urban Planning and Construction between 01 January and 30 June 2017 with the total investment valued at USD 4.94 billion (up from 1,183 projects with a total value of USD 3.87 billion for the same time period last year).
In relation to this growth, projects are now becoming more international, complex and creative than before and, as a consequence, these projects require more expertise as the risks for the parties involved increases as well.
Therefore, many investors, architects, engineers, builders and sub-contractors in Cambodia are looking to execute international standard contracts for their projects in order to determine clearly the scope of works and the rights, obligations, duties, and liabilities of the parties. FIDIC contracts are model contracts which have been developed over more than 60 years as an international standard for international engineering and construction projects by the International Federation of Consulting Engineers (“FIDIC”).
They are various benefits for parties using these contracts which explain their popularity in America, Europe, Africa and Asia.
FIDIC contracts are used for different kinds of construction and plant installation projects, such as infrastructure, real estate complexes, high rise buildings, factories, and refineries. There are model contracts to cover a variety of both private sectors and public sector projects. Development agencies also regularly use FIDIC contracts for the projects that they finance.
The model of contracts are divided into different books which are color coded for ease of reference (red book, green book, silver book, yellow book, white book, gold book, etc.).
The choice of which model contract to use as the basis of the contract to be executed between the parties will depend on various elements, such as the nature and size of the project, the purpose of the contract, and the identity of the parties (such as whether between the owner and the contractor or between the contractor and a sub-contractor or consultant).
In this respect, choosing the right model contract is really important as each FIDIC contract is drafted for a certain type of project and will, therefore, cover different terms and conditions specific to that project type. Using the wrong model contract will have various consequences which can be significant, as the model contract will not have been adapted to the specific needs and concerns of the parties to the project.
Therefore, it is recommended for those who are not familiar with FIDIC contracts to use the assistance of a lawyer or an engineer in order to choose the appropriate model contract for their specific project. This will ensure that the correct model contract which is best suited to their project will be used.
FIDIC contracts are very clear and detailed and cover all kinds of issues that can happen during the process of construction in order to reduce the risk of any future disputes. FIDIC contracts include the best practices in the industry and the common issues and concerns that may be found in similar projects.
The fact that the contracts are very detailed is also important in order to cover issues which are not yet covered by the applicable laws and regulations. This is, in particular, the case in Cambodia where the Construction Code has not yet been adopted. For example, FIDIC contracts cover issues such as the defects warranty period, performance security given by the contractor, and late delivery penalties.
FIDIC contracts are also a tool which is almost ready and very easy to use, despite their long complex nature, for those who are familiar with these contracts. These model contracts, therefore, facilitate discussion and negotiations on the terms and conditions of the contract and, as a consequence, it will reduce the costs for the parties relating to the drafting and negotiation of the contract.
Another element which explains their popularity is the fair and balanced obligations and duties of the parties. FIDIC contracts are not drafted in favor of one party against the other, but rather with the aim to be fair and to protect both parties.
Using FIDIC contracts is also very common for foreign investors, contractors, architects, engineers, and subcontractors who have already used them for previous projects developed in their own country. It is easier to use the same model contract all over the world and the parties will be more confident in the success of the projects.
However, considering that no two projects are the same, a FIDIC contract will need to be revised in order to be adapted to (i) the specifics of the construction project, (ii) the terms and conditions negotiated between the parties, including for dispute resolution (iii) mandatory provisions of law and regulations applicable in Cambodia to the project, and (iv) timelines, including any remedy period.
It is recommended to amend carefully a FIDIC contract as the specific terms and conditions of the contract can impact significantly on the efficiency and success of the project.
In conclusion, the use of a FIDIC contract for a construction project provides various benefits which explain the success and popularity of these contracts as they improve the chance of success of the project.
ON THE AUTHORS ING Sophealeak and Charles AMAR, lawyers at Bun & Associates, advise domestic and foreign clients seeking expert advice and innovative solutions in dealing with significant and complex transactions involving both raw and developed properties. Their work includes advising on all issues relating to real estate investment, project development, construction and asset management. Our real estate team has also hands-on expertise and experience in advising clients on matters related to economic land concessions, special economic zones, agriculture, the environment and mining. We have been recently involved with the drafting and negotiation of a FIDIC agreement for a major property development.
This publication is for your information only. It is not intended to be comprehensive and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances. Any use of the information contained in this article or the receipt of this article is not intended to create nor does it create a solicitor-client relationship between you and Bun & Associates. Unless otherwise indicated, Bun & Associates owns the copyright of this article. If you seek to reproduce or otherwise use this article or any part of it in any way, it is your responsibility to obtain approval for such use where necessary.
For further information please contact us at: Bun & Associates #29, Street 294, Phnom Penh, Cambodia, P.O. Box 2326 T: +855 23 999 567 / F: +855 23 999 566 E: ing@bun-associates.com amar@bun-associates.com www.bun-associates.com
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