A Study of International Construction Contracts - Essay Example

International construction has become part of our globe today and this is mainly due to the extent of technology witnessed in our day to daylife. This has made the whole idea seem so familiar yet complicated due to the complexities associated with foreign dealings. It is this belief in complexity held by many that has inspired my research on this particular field. Therefore, the main drive is the urge to understand the basics behind international construction and create a pool of knowledge which will not only build my understanding of the issue but also give those interested in construction a chance to explore wider opportunities. Besides the central issue of construction, it has also dawned on me that the very legal backing behind the international engagements and more specifically the construction industry is the contractual agreements, thus the urge to understand the different aspects of construction has led me into digging deeper into the legal framework that creates the enabling environment binding both the contractor and the contracting party. Thus this study is zeroed in on international construction and international contracts. Information on these two is gathered from literature books on construction and legal books on international contracts an in depth study has also been conducted on various journal releases on construction. The study also includes information gathered orally from peers in the construction industry and though this research may not be satisfactory to all interested in the study, it will at least offer an insight into the issue. Introduction Local development has led to most companies devolving their incomes to other engagements and this has led to cross border trading and to a greater extent global trading. This has not been exceptional for construction companies which have extended their services to other countries well beyond their mother countries. This has been due to difference in technology, existence of conducive business environment and availability of liquid capital which has facilitated investment. However, engagement in foreign countries has definitely brought a need for regulatory measures which have been accorded through international contracts which bind the firms involved. A contract is a biding agreement between two firms or parties which draws expectations of each in regard to the other. (Pheng et al 2004) It is based on laws and since international agreements consist of more than one country, then there is need to consider the laws of these two countries. This again has brought in some technical aspects as all laws are not unanimous and each country has its own construction regulation laws as well as legal aspects that govern contracts. To overcome this discrepancy, a panel of individuals is drawn from countries with a common legal background such as the common wealth countries and they draw agreeable laws which are used in drawing a contract. These are the laws that are used to draw up international contracts and follow up a specific guideline and outline precisely the requirements and terms of the contract. In regard to the construction industry, there are certain agreed architectural and construction laws which govern international construction. (Chapman et al 2007) These must be abided by in order to ensure safety and quality for those who are subject to the constructions. This part of the research thus looks at certain aspects of the contracts specifically related to the construction industry. To ensure that this is tackled properly, the study will be divided into three parts. The first will tackle the success factors in international constructions, the second part will tackle the potential problems faced by international contractors and how these problems can be tackled and the final part discusses the future roles of international contracts. Conclusion Success factors These are factors that need to be considered before a construction engagement for they determine the success of the engagement. Project scouting This should always be the first step before undertaking a construction project. Scouting mainly entails site visitation in order to come up with the requirements and other necessary aspects of the project. Site visitation helps contractors underline requirements that are specific to that particular setting. It also helps them ensure that local factors are part of the planning process. This is because the factors existent in the actual countries may not exactly be the same with countries where these new contracts are given. A local contact It is always important to have someone who is well versed with the locality around which the contracts are awarded. This helps in sourcing the materials required, easing movement around the place and most importantly facilitating movement around these areas. These local contacts may be part of the contracting company or may be a temporary employee hired for the particular reason of advancing the specific project. Either permanent or temporary what is important is that the local contact bear enough knowledge of the area as well as the legalities and technicalities touching on the construction industry. This is because it would not make sense to have an individual who understands nothing about construction as a contact. Involvement of locals Involvement of locals is of great importance as what is being constructed is a long term asset to them thus it is always important to set the right relations from the start. The construction company also get its labour from the local community. Actually in most engagements, the construction company will only have the construction supervisors and the rest of the manual suppliers will hail from the locals. (Pheng 2004) Other advantages of good relations with the local community are general security which is a result of improved relations between the construction company and the individuals within the community. Support from other contractors This is one of the most ignored bits and what in most cases results to downfalls as most of these companies fill self sufficient. However, the actual scenario is that no company can be self sufficient to the extent that it requires no support from other construction companies. This may be in regard to materials, labour and in some cases financial assistance though this is not common. (Pheng 2004) With international contracts, the contracting company needs to have good relations with the local companies performing similar roles as these will aid in guidance having been in the same market for long. Constant consultations should be held between these firms so as to get assimilated to these areas faster and with greater understanding. A survey on these international contractors and specifically with construction firms indicates that most of them enter into certain, markets due to guidance from other initial entrants into the market. Though there may be certain cases where the mother governments play a part in the establishment of the companies in foreign countries, they should also ensure that there are good relations and that they do not appear as a threat to the local market but in most cases appear to be generating some kind of a hybrid system. Government support This is essential as the government provides the legal framework and in most cases it is this framework that regulates the activities within the country. This is in as far as the new country is concerned. In terms of the mother government, they create an enabling environment which acts as the support for the companies. (Christensen et al 2007) These governments also engage in negotiations which help ease the trade bureaucracy that characterises most international contracts. Funding Adequate funding is essential for any project as it is what creates the difference between a sketch and an actual construction. Though in most cases, companies engaged in international contracts have the financial muscle necessary to carry on assignments granted as bidding is a voluntary activity. (Chapman et al 2008) With this in mind, it is always sound to have a backing in case circumstances change or unforeseeable circumstances result. Most companies guarantee their financial base through engagements with financial institutions which guarantee funding on the earliest request. Potential Problems Most problems that are encountered by these international firms result from the economic setting of the hosting countries or emanate from social settings of these companies. These however are a bit general and the following part tries to narrow these into constituent parts both under social and economic parts. Exchange rates These affect the total project cost and depending on the movement, the cost may be escalated or lowered. Since currencies are affected by very many factors ranging from economical factors to political factors, it becomes a real risk which is difficult to control. The greatest risk however results when the mother country currencies decline in comparison to the contracting company. Language barriers This is a social barrier and affects major aspects of the construction market. Even though there maybe aspects that ease this such as existence of a universal language, there still exists a large number of uneducated people a factor which may hamper communication. (Chapman et al 2008) Energy conservation and the environment The concern for the environment is mainly an aspect considered by most countries and compliance in different countries may not be the same. This brings in new aspects such as increased cost in regulations due to new requirements. Technology Technology differs from one country to another; this creates a challenge to these companies who try to adopt a higher technology to meet the requirements of a given country. This presents an additional cost consideration as new investments are required and there is also the risk that this technology invested in may become obsolete in some other countries. Bidding This is also a challenge as a company places its resources in a not so certain deal. Recommendations Most of these challenges or problems as may be referred to in some quarters increase the risk level of a company engaged in these international contracts. Therefore cushioning of these problems means reduced risk for the company. (Christensen et al 2007) Each problem calls for a different measure as it presents a different kind of risk. Exchange rates may be cushioned by an insurance company or a lending bank or the use of stable currencies. The language barrier may be overcome in the hiring process by looking for individuals with a certain qualifying mark. Technology on the other hand may be overcome through investments. Country consideration of where investments in construction contracts are is only done in countries where technology parity is not as wide as this serves to avoid obsoleteness. (Pheng et al 2004) Future role of international contracts These roles may not change much from what we have at present. This is because the very same regulatory role played at the current times will be the same to be played in future. It is however essential to realise that the dynamism in the current world may require constant changes in the regulations especially to accommodate the influx in mushrooming companies due to the "global village phenomena." The other most likely influence on the international contracts is the technological advancements likely to face the subject firms. (Christensen et al 2007) All these will call for constant adjustments in the contracts and there is need to ensure that it does not under all circumstances deviate from its initial function of regulation. References Chapman, C and Ward, S (2008), 'Development and implementing a balanced incentive and risk sharing contract', Construction Management and Economics, vol. 26, no. 6 Christensen, S, McNamara, J and O'Shea, K 2007,'Legal and contracting issues in electronic project administration in the construction industry', Journal of Structural Survey, vol. 25, no. 3-4, Reynolds, N (2008), 'Managing international contract administration', Journal of International Transactions, vol. 5, no 12. Pheng, LS and Jiang, H (2004), 'Estimation of international construction performance: analysis at the country level', Construction Management and Economics, vol. 22.no. 8. Read More