The construction of hydropower plants is a highly specialized activity that requires knowledge of numerous disciplines, including geology, hydrology, geotechnical engineering, structural engineering, and others.
A hydroelectric project requires several processes from conception to completion. The licensing and permitting process, as well as engineering, contracting, and owner considerations, are all part of the procedure. In this case, a variety of people will need to sign several agreements in order to develop a hydropower project
Competent skilled lawyers with solid contract drafting skills are required to develop hydropower projects. Corporate Lawyer Nepal Center employs skilled lawyers with experience in contract drafting. This article discusses the various challenges that we have faced while providing consulting services on various hydropower projects over the years.
We have a multifaceted team with extensive knowledge of the subject. A multi-disciplinary team with diverse experience and knowledge will be essential to the project’s success. Several hydropower projects are currently under construction in Nepal. Various kinds of contractual issues are affecting ongoing construction projects.
This paper attempts to examine the contractual issues confronting hydropower projects currently under construction in Nepal in general.
Drafting a Hydropower Contract in Nepal
1. Contract Structure
A contract structure is essential when drafting a hydropower-related contract. We divide major contracts into two sections.
- Part I, that includes the General Conditions, and
- Part II discusses the conditions of specific application
The general terms of the contract are found in Part I and cover topics such as each party’s rights and obligations, payment procedures, variation, certification, and dispute resolution.
Part II of the contract contains the conditions of specific application, which are intended to be used to introduce project-specific clauses such as contract language, choice of law, and the name of the person or company designated to act as Engineer or Employer’s Representative for the project, among other terms.
When drafting a hydropower contract, it is critical to keep the substantive fact, other facts, and alternative clauses separate.
2. Technically Reliable
When developing technical specifications for a hydropower project, the drawings should be clear and readable. The two phases of the hydropower project must be completed. The first stage includes a civil contract and civil work. After the civil work is completed, the hydro-mechanical work begins.
If the technical specifications and drawings for both works are adequate, the development and budgets for each part can be worked out in the first phase under a civil contract. Documents that are unclear amplify contractual issues. One of the reasons is signing documents that have been poorly formulated.
The majority of disputes in Nepal are caused by non-compliance with technical specifications. As a result, such technical specification drawings serve as guidelines for contract drafting, and later, after the damage has occurred, a dispute arises regarding who will bear the compensation.
Some clauses relating to compensation and payment to the other party, as well as contract terms, are distorted without a thorough review.
3. Disputes Regarding Payment
Since hydropower projects frequently have high construction costs, it is a routine trend in Nepal to delay contractor payments, leading to a slew of issues related to severe cash flow problems. Besides that, the Contractor routinely claims for more than what it has delivered.
As a result, the Client/Consultant wishes to postpone or reduce the number of items that must be certified. Clients frequently postpone payment for a variety of reasons, including disagreements with financiers and shareholders, as well as Changed Circumstances during Construction.
Everyone recognizes that the conditions envisioned during project planning, design, and contracting may change during construction. However, due to insufficient research, a lack of appropriate knowledge, and a lack of appropriate experiments, the initial planning prior to construction drastically changes during construction.
Variation order procedures are frequently required as a result of changed circumstances. Different observers and officials frequently obstruct authorization and payment.
4. Unexpected events
Nepal is a small country with varied geology and rugged terrain. The initial studies conducted in its most remote areas are expensive. Private investors, on the other hand, are constrained by financial constraints in Nepal. The project’s investors have a modest budget for geophysical discovery, analysis, and research.
As a result, unexpected circumstances frequently arise during the construction of underground work. Because of the Client’s lack of detailed review prior to construction and procurement, subsequent design changes are time-consuming and most often troublesome
As a result, in order to mitigate such construction and contractual discrepancies, proper geophysical, seismology, bedrock refining, and hydrostatic designing shall be applied as a custom prior to actually initiating building projects.
The contractual ability of the parties is inconsistent with the contract, and they have yet to develop professionalism. Because the construction industry in Nepal is growing at a steady rate
The contractual party’s financial position is not thoroughly evaluated, nor is the volume of work in hand adequately projected, as a result of the consultants’ and clients’ reduced scope
The risk rises due to an incomplete assessment of the parties’ technological and management experiences, as well as a clear understanding of the contractor’s lawsuits scenario.
It is critical that stakeholders in Nepal’s construction industry train their support staff to the point required to organize, evaluate, and manage contract terms problems in line with international standards.
5. If a Force Majeure event occurs
In Nepal, Force Majeure events include avalanches, natural disasters, river flooding, and erosion sedimentation. Natural disasters cause many construction projects to be put on hold for longer durations. Returning to work after a temporary demobilization is quite often incredibly difficult as a result of these conditions.
Payment delays caused by force majeure events are difficult to assess and require higher contractual inputs, which are frequently unavailable in the Nepalese market. Dispute resolution mechanisms are common in the construction industry. As a result, monitoring systems, independent inquiry, and evaluation are required to resolve such contractual issues.
Furthermore, standard Protocols are not adequately documented and, in some cases, are not followed at all during the claims evaluation process. Finding a win-win situation within our human resources is challenging because the contractor intends to claim more than potential losses, and the client routinely refuses to acknowledge the other party’s claims.
6. The language used in the contract
English is the medium used in the development of international construction contracts. Despite the fact that Nepali is the country’s official language, contracts for hydropower construction are written in English. A range of issues must be articulated in the contract. As a result, not all contract-related words may be available in Nepali. Such English terms with dual meanings should not be used when entering into a contract with a Nepali contract. The medium of instruction for all contract-related subjects is English. Consider the cost and time involved in translating lengthy contracts into another language if the contract is written in two languages. English is regarded as the primary language in this case. As a result, a contract should be written in English.
7. Use correct grammar
Make use of proper grammar. Check that your clauses are related precisely, that your sentence structure characterizes your meaning, that your “I”s are dotted, and that your “t”s are crossed.
Take a glance for and eliminate inconsistencies.
8. Avoid using jargon
Avoid using abbreviations that will be meaningless to a party from some other nation. Clarify what you signify in basic terms.
9. Try to not include everything
Make no attempt to be all-encompassing. A comprehensive list will never include everything. Responsive terms will be far more inclusive than lists of terms that attempt to be all-inclusive but end up being one-of-a-kind.
10. Jurisdictional issues
Nepali contractors can only develop small hydropower projects in Nepal. Foreign contractors are involved in large hydropower projects as a result of Nepali contractors’ failure to build large hydropower projects in Nepal. When entering into a contract with a foreign contractor, it is critical in such cases, the parties must agree on how any disagreements will be resolved using the law and courts of one or both parties. Depending on the stakes, they may choose a reconciliation – it is critical to discuss any replacement strategy with clients in advance if their preferred governing law or jurisdiction is not accepted consider jurisdictional issues. It is critical to include a jurisdiction clause when entering into an international contract. A jurisdiction clause specifies which country’s courts will hear any contract-related disagreements. It is common to grant exclusive jurisdiction. It implies that, aside from the courts listed, no other courts should have jurisdiction over disputes. Here’s an example of an exclusive jurisdiction clause:
How to Conciliate a Dispute?
Contract negotiation terms must be included in your contract to ensure that all parties fully understand the procedure to be followed if a dispute arises. The parties must agree on whether to resolve a dispute through arbitration or litigation.
If the parties opt for arbitration, they must at a minimum explicitly state the location and language of the arbitration. If the parties choose litigation as a method of dispute resolution, they should assign the national or municipal courts where lawsuits will be filed.
When considering jurisdiction issues, it is critical to include the jurisdiction of the country where it is advantageous to file a lawsuit.
Event of Force Majeure
During negotiations, be prepared for the unexpected. Several large hydropower projects suffered massive losses as a result of Nepal’s devastating earthquake in 2015. As a result of the 2015 earthquake, this is a learning opportunity. We’ll have to deal with issues we didn’t expect to deal with. The opposing party, for example, may argue that “force majeure” should be used to justify not paying existing debts or to limit liability for breaches of confidentiality. It’s possible that the person on the other end of the line isn’t familiar with how such situations are usually handled. The manner in which “rhetorical” issues are addressed does not always work to their advantage.
Recent natural disasters, such as the Earthquake, have emphasized the importance of planning for the unforeseen when attempting to negotiate consultation contracts. If a tragedy hits, who will bear the loss?
We must follow several formalities outlined in the contract when signing a contract. It is vital to consider who will sign the contract as the company’s legal representative and who has been delegated such authority by the company’s promoters.
Each of these factors needs to be considered. In some jurisdictions, the parties must follow certain procedures in order for the contract to be valid. For example, each party could demonstrate that the person signing is authorized. Signatories will receive corporate seals if their signatures are original.
Some of these formalities may appear archaic, but they may be appropriate in the context of legal systems that provide only limited protection against fraud.
Include the Time Factor
When entering into a contract involving hydropower, the timeline is critical. In the event that the project is not completed on time, the type of compensation to be paid by the contractor should be clearly outlined in the contract. Keep track of any deadlines that have passed. If no completion date is specified, a reasonable time is usually assumed, and “reasonable” is one of those unclear guidelines.
Despite having a large hydropower development potential, only a small portion of it has so far been realized. Despite the fact that many hydropower projects are being constructed in Nepal, some major challenges, such as the ability to deal with contractual issues, are not being met to industry standards.
As a result, Nepalese stakeholders in the construction industry must adequately prepare their personnel so that they can better equip, evaluate, and manage contractual problems in accordance with international standards.
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Alpana Bhandari is a founding partner and CEO of Prime Legal Consultants and Research Center. She graduated from American University Washington College of Law. She specializes in corporate/arbitration and family law.