Introduction:

A Construction contract legally binds the rights, duties, and expectations of all parties of a project such as the owners, the contractors, the subcontractors, and the consultants. The drafting a construction contract in Bangladesh is not a simple exercise since it entails creating a legally sound structure combining the requirements of the Contract Act, 1872 which are offer, acceptance, consideration, agency, breach, damages and frustration with the complex legislative and regulatory framework in Bangladesh, public procurement legislation, building and safety regulations, labour and environment impacts, tax and stamp compliance and dispute resolution through domestic courts and foreign arbitration.[1] An appropriately drafted contract is a confidential agreement that apportions risks in favour of the employer and the contractor; guarantees that regulations are complied with; and serves as a trail of evidence of matters that may generate an argument on delay, variation, defect, or termination.[2]

Things to remember while drafting:

Construction lawyers apply their experience in drafting contracts that are legally and practically acceptable with the peculiar needs of the project. It implies that their involvement will ensure the protection of parties’ interests in the contract, considering the depth of the lawful and regulatory environment in Bangladesh, the Contract Act, 1872, and the Bangladesh National Building Code (BNBC) 2020[3].

Understanding of the Project:

Before drafting, there is a consistent need to understand the scope of the project, the timeline of the project, the budget, and the parties involved in the project. A construction lawyer and a client collaborate rigorously to gather all the critical data, such as the targeted outcomes of the project, the method of project delivery and the requirements of project participants.

Applicable Legislations:

The necessary laws are the Contract Act 1872, which forms the general principles of contract, the Public Procurement Act 2006 and the Public Procurement Rules 2008, which govern government-funded projects, and the BNBC 2020, which provides principles of design of buildings and safety. There are other applicable laws such as the Environment Conservation Act, 1995, and its rules (1997), the Bangladesh Labour Act, 2006 and Labour Rules, 2015, as a matter of worker safety and welfare standards; the VAT & SD Act, 2012, and Income Tax Act, 2023, for the fiscal compliance method, and the Arbitration Act, 2001, the New York Convention and BIAC arbitration rules, to address dispute resolutions.

It is to be noted that reference to the Stamp Act, 1899, Registration Act, 1908, and Transfer of Property Act, 1882, to execute the contract, to include clauses involving the transfer of property, as well as refer to the CPTU Standard Tender Documents that are based on FIDIC forms in terms of what is the international best practice. Additionally, payment terms specify such financial arrangements as lump-sum or progress payments, cost overruns, and taxes payable under the VAT & SD Act, 2012, and Income Tax Act, 2023, as in the case of road construction. The timeline and milestones provide timelines and consider penalties such as liquidated damages in case of delays by the Public Procurement Rules, 2008. Risk allocation provisions are fair in the allocation of risks, i.e., there are unexpected circumstances, there is force majeure, and the insurance should not be against the Bangladesh Labour Act, 2006. Mechanisms of dispute resolution, citing what is referred to as the Arbitration Act, 2001, the BIAC rules, or the New York Convention, include provision of either mediation, arbitration, or proceedings in a litigation, with a specific governing law and jurisdiction.[4] The clauses of termination and suspension cover such conditions as non-performance under the labour laws, and compliance and safety clauses require compliance with BNBC 2020, the Environment Conservation Act, 1995, and local laws, comprising permits and environmental assessments.[5]

Hinderances during Drafting:

However, drafting a construction contract in Bangladesh is sometimes accompanied by serious problems. As an example, one of the 2022 commercial construction projects in the Gulshan area of Dhaka city saw a conflict between the contractor and the developer as to who would replace the lighting and sanitary fittings. In the contract, the scope of this work was ‘not clearly defined and this delayed their work and resulted in cost overflows’. Such a form of uncertainty could have been addressed by referring to comprehensive construction standards like Bangladesh National Building Code (BNBC) 2020 that contains minimum requirements that building components have to meet. So far as, the construction contracts in Bangladesh are prone to disputes whenever the roles or the scope of works are uncharacterized. As an example, a recent arbitration was concerning power-sector project where one of the partners was not able to meet the obligations because of the contractual ambiguity that led to the court[6]. Conversely, the Bangladesh National building code (BNBC) 2020 has elaborate standards on the components of the building and attached facilities. As drafters include BNBC 2020 clauses into the contract, particularly the specification of scopes such as the specification of fixtures, drafts can minimize ambiguity, create more fair outcomes and reduce chances of conflicts.

It is essential to allocate risks fairly, and under the help of the lawyers both the parties come to a self-explanatory negotiation process accordingly balancing between the requirement of the owner requiring cost certainty and flexibility needed for the contractor in case of contracts in flood prone areas- the weather risk is borne by the owner with the contractor insured by the Bangladesh Labour Act, 2006. It is essential to keep up with changes in the rules, which may include the concepts of sustainability in the Environment Conservation Act, 1995, or even a change in labour laws, and such changes must be kept abreast through constant education so that the contracts can be drawn up in tandem with better practices.

An improper Construction Contract, can ignore the Environmental Compliance or the ‘force majeure’ clause which can cause disputes in the future. Additionally, not mentioning the mentioning proper Arbitration Method or clauses in the contract can become obstacles to the parties to implement the contract, resulting court proceedings.[7][8]

Conclusion:

The experience of a construction lawyer becomes imperative in preparing the contracts, which not only contain all the elements of clarity and transparency but also aid in achieving regulatory standards and maintaining fairness in the legal dynamics of such a complicated legal system as in Bangladesh. Given the intricacy of construction activities, these lawyers are keen to offer a set of designs to enable them to customize their contracts to project requirements, and they are eager to incorporate essential elements of business operations in them, such as the scope of works, payment terms, schedules, and the processes of resolving conflicts.[9]

Disclaimer:

The articles published on The Society of Construction Law Bangladesh (SCLBD) website are intended for research and educational purposes only. They are written in good faith to promote knowledge and understanding of construction law. No part of these articles may be reproduced, distributed, or used for any commercial purpose without prior written permission from SCLBD. While every effort has been made to ensure the accuracy of the information, the information published on The Society of Construction Law Bangladesh (SCLBD) website does not constitute any form of legal advice or guidelines whatsoever. Readers are advised to consult legal professionals for advice on particular matters.