by John B. Tieder, Jr., Senior Partner

The economic slowdown in the United States has caused many businesses, including those involved in the construction industry to look for new opportunities outside the country. Although it now appears there is virtually no part of the world that has not been affected to some degree, there are always places where high quality construction-related services and suppliers are in demand. For those considering expanding their market, the purpose of this article is to provide an introduction to the legal aspects of international construction contracting. This is the first of two parts to be published in the firm newsletter; the second part will be in the Spring edition, to be published in May/June, 2009. If you would like the complete article at this time, please contactlbreighn@wthf.com or go to our website,www.wthf.com, articles.

What Makes a Contract, “International?”

In the simplest sense, a contract is, “international,” when services are performed or goods delivered outside the United States. In the broader sense, a contract is, international, when it is subject to the laws of another country or those laws of the United States applicable only to transactions which are performed at least in part outside the United States. One example of such a U.S. law is the Foreign Corrupt Practices Act (FCPA, 31 U.S.C. §§78dd-1, et. seq), which only applies to transactions involving foreign countries.  Some contracts are a combination of international and domestic laws. For example ,the construction of United States embassies is governed by the same Federal Procurement laws (Federal Acquisition Regulation) as any domestic federal project; however, the subcontracts are often governed by local law and are thus, “international.” Thus, from a practical point of view, a contract is international when it is governed in whole or in part by laws other than those applicable to domestic United States’ projects. The types of those laws and their effects are addressed in the subsequent sections of this article.

Applicable Treaties (Conventions)

The treaty obligations of the United States are second only to the Constitution as the supreme law of the United States. Thus, treaty obligations supersede other federal laws and state laws. Commercial treaties are of two general types: multilateral and bilateral. Multilateral treaties are between several countries and bilateral treaties are only between two countries. The United States has entered into thousands of treaties with virtually all the countries of the world.

    Multilateral Treaties. — The multilateral treaties which are of particular interest to the construction industry are set forth below.

    (1)     New York Convention on the Recognition and Enforcement of Foreign Arbitral                 Awards (1958 New York Convention) 9 U.S.C. §§ 201 et seq.

This is a multilateral treaty that has now been signed by 144 countries. In summary, it provides that an agreement to arbitrate or an actual arbitration award made in any country which signed this Convention will be recognized and enforced in any other signatory country.  There are some limited exceptions.  Regardless, a party to a contract with an arbitration provision or who has obtained an arbitration award has a least some assurance that the agreement to arbitrate and any ensuing award will be enforced by the courts of a signatory country where the other party is located or has assets.

    (2)     United Nations Convention on the International Sale of Goods (CISG)

The United Nations Convention on the International Sale of Goods (CISG) is a treaty which sets forth the substantive law applicable to the sale of goods when the buyer and seller are both citizens of countries who have both signed the treaty. It is applicable to the same general category of transactions as the Uniform Commercial Code (UCC) is in the United States, i.e., contracts where the predominant element is the sale of goods and services are incidental.  Therefore, it applies to the sale of major components for power plants such as turbines, generators,  HRSG’s (boilers) and, emission control devices, and for oil refineries’ components such as major vessels and piping. Since the United States is a signatory to the CISG, if the country to which components for a project are being delivered is also a signatory, the CISG is the law of the Contract unless specifically excluded. On the other hand, even if it is not the law of the Contract by operation of the Convention, the parties can provide for its adoption. A total of 72 countries have signed the Convention. There is a considerable body of case law worldwide on the CISG, both as to its application and substantive issues. A valuable access link to this case law is the United Nations Commission on International Trade Law (UNCITRAL) website: www.uncitral.org.

    (3)     Energy Charter Treaty

This is a relatively new treaty with the purpose of encouraging the development of energy projects throughout the world. Its goal is to offer the developers and constructors of energy projects non-discriminatory protection when they construct energy projects in foreign countries. A particularly important provision is for disputes to be resolved by international arbitration in a country which is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, see above.

    (4)     Other Treaties

There are numerous other treaties that should be of at least some interest to the construction industry; these include: United Nations Convention on the Use of Electronic Communications in International Contracts, Agreement on Trade-Related Aspects of International Property Rights (TRIPS), United Nations Convention Against Corruption and United Nations Convention on Jurisdictional Immunities of States and Their Property.

    Bilateral Treaties. —  The United States has bilateral commercial treaties with almost all countries. One category of particular interest is the Bilateral Investment Treaties (BIT’s). These cover a variety of topics, such as a commitment that a United States company’s investment will receive the same treatment in the other signatory country as the investment of a domestic company and vice-versa in the United States. Perhaps the most important provision is that investment disputes will ultimately be resolved by arbitration, typically through the International Centre for Settlement of Investment Disputes (ICSID), an affiliate of the World Bank and located in Washington, D.C. The arbitration awards of ICSID are final and must be enforced by the courts of the signatory countries. Construction contracts are “investments” within the meaning of the BIT’s. The United States has entered into 40 such treaties to date including such diverse locations as Mongolia and Rwanda. A full list can be obtained from the ICSID website: www.icsid.worldbank.org.  In summary, the applicable treaties, multilateral and bilateral should be determined before concluding a contract. In general, these treaties provide varying degrees of protection for the foreign contractor.

Part II – The Foreign Corrupt Practices Act, Agents, Choice of Law Provisions, Forms of Contract, Payment Terms/Currency of Payment, Liquidated Damages and Penalties, Intellectual Property, Letters-of-Credit as Performance Security and Disputes Resolution.


The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.