Instituto de Estudios Políticos y Derecho Público "Dr. Humberto J. La Roche"
de la Facultad de Ciencias Jurídicas y Políticas de la Universidad del Zulia
Maracaibo, Venezuela
Publicación cientíca en formato digital
ISSN-Versión Impresa 0798-1406 / ISSN-Versión on line 2542-3185
Depósito legal pp 197402ZU34
ppi 201502ZU4645
Vol.40 N° 74
2022
ISSN 0798-1406 ~ Depósito legal pp 198502ZU132
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Vol. 40, Nº 74 (2022), 830-848
IEPDP-Facultad de Ciencias Jurídicas y Políticas - LUZ
Recibido el 15/07/22 Aceptado el 22/09/22
Experience of conclusion
and performance of engineering,
procurement and construction contracts
in post-Soviet countries
DOI: https://doi.org/10.46398/cuestpol.4074.46
y
Volodymyr Ustymenko *
Vlad slav Teremetskyi **
Kateryna Bida
***
Petro Denysyuk ****
Nataliia Novytska *****
Abstract
The main purpose of the article is the analysis of properties
and risks arising during the conclusion and performance of
engineering, procurement and construction contracts (hereinafter
referred to as EPC contracts) in Ukraine, Kazakhstan, Russia and
Belarus, notwithstanding the current situation with military aggression and
sanctions. The methodological basis of the study consists of the comparative
legal and structural-logical method, systemic analysis and synthesis. It also
describes the ways of relevant adaptation of EPC contracts in accordance
with the requirements of the legislation. In addition, the authors have
studied in detail the legal instruments that could help the contracting parties
to establish the control due to occurrence of risks in dierent jurisdictions
of the post-Soviet space. Finally, it was concluded that the application of
EPC contracts, in the countries of the post-Soviet space, is connected with
the presence of high level of political risks that should be taken into account
when carrying out large-scale infrastructural projects. The results of the
* D. Sc (Law), Professor, Corresponding Member of the National Academy of Sciences of Ukraine,
Director of the State organization «V. Mamutov Institute of Economic and Legal Research of the
National Academy of Sciences of Ukraine» of the National Academy of Sciences of Ukraine, Kyiv,
Ukraine. ORCID ID: https://orcid.org/0000-0002-1094-422X
** Doctor of Law, Professor, Head of Constitutional, administrative and nancial law department of the
Academy of Labour, Social Relations and Tourism, Kyiv, Ukraine. ORCID ID: https://orcid.org/0000-
0002-2667-5167
*** PhD in Law, Associate professor, Associate Professor of Civil, Trade and Commercial Law Chair of the
Academy of Labor, Social Relations and Tourism, Kyiv, Ukraine. ORCID ID: https://orcid.org/0000-
0001-6827-1999
**** PhD in Law, Associate professor, Department of Special Legal Disciplines, National University of Water
and Environmental Engineering, Rivne, Ukraine. ORCID ID: https://orcid.org/0000-0001-9233-
5200
*****
D.Sc (Law), Professor, Professor of the Department of Private Law State Tax University, Irpin, Ukraine.
ORCID ID: https://orcid.org/0000-0003-4753-7625
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CUESTIONES POLÍTICAS
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study will be useful to practicing lawyers, students and scientists who are
interested in the examination of public relations in the eld of civil works
with some political inuence on the development of this sector.
Keywords: contract enforcement; capital construction; contract law;
civil engineering; post-Soviet countries.
Experiencia de celebración y cumplimiento de los
contratos de ingeniería, compras y construcción en los
países postsoviéticos
Resumen
El objetivo principal del artículo es el análisis de propiedades y riesgos que
surgen durante la celebración y cumplimiento de contratos de ingeniería,
compras y construcción (en lo sucesivo contratos EPC) en Ucrania,
Kazajstán, Rusia y Bielorrusia, sin perjuicio de la situación corriente con
la agresión militar y sanciones. La base metodológica del estudio consiste
en el método comparativo jurídico y estructural lógico, análisis sistémico y
la síntesis. También se describe los modos de la adaptación pertinente de
contratos EPC, de conformidad con los requisitos de la legislación. Además,
los autores han estudiado detalladamente los instrumentos jurídicos que
podrían ayudar a las partes contratantes a establecer el control debido
al ocurrir riesgos en diferentes jurisdicciones del espacio postsoviético.
Finalmente se llegó a la conclusión que la aplicación de contratos EPC, en
los países del espacio postsoviético, está relacionada con la presencia de alto
nivel de riesgos políticos que deben tenerse en cuenta al realizar proyectos
infraestructurales de gran tamaño. Los resultados del estudio serán útiles
a los abogados en ejercicio, estudiantes y cientícos que están interesados
en el examen de las relaciones públicas en el ámbito de las obras civiles con
alguna inuencia política en el desarrollo de este sector.
Palabras clave: cumplimiento de contratos; construcción de
capital; derecho contractual; ingeniería civil; países
postsoviéticos.
Introduction
In recent years, the area of analysis and adaptation of contracts
developed by the International Federation of Consulting Engineers
(hereinafter – FIDIC) became highly interested among practicing lawyers.
832
Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
This is primarily connected to the fact that a number of infrastructure and
energy projects have been implemented with the help of EPC-contract
forms, created by FIDIC.
FIDIC model contracts were prepared by the International Federation
of Consulting Engineers (Fédération Internationale des Ingénieurs-
Conseils). There are 9 basic FIDIC model contracts covering a broad range
of contractual relations in construction, the most popular being the Red
Book (design by the employer), Yellow Book (design by the contractor),
Silver Book (turnkey projects), and Pink Book (adapted to the requirements
of international nancial institutions).
Silver Book «Condition for Contract for EPC Turnkey, First Edition»
occupies a special place among the mentioned-above list. It uses for the
construction a fully equipped and ready-to-use power plants, factories or
infrastructure facilities from A to Z. This form of agreement has given a
fresh impetus to the development of standard turnkey capital construction
contracts and popularized the EPC (Engineering, Procurement,
Construction) contract model.
As world practice has shown, the use of the FIDIC standard helps to
signicantly increase the eciency of construction projects, and the use
of EPC-contract ensures uency, transparency of construction project
management, and equitable allocation of the risks between employers and
contractors with a reduction of delays and cost overrun.
Model FIDIC contracts are not binding and their application is voluntary
for the parties, but many foreign companies successfully use them in
business. It should be noted that parties are free to decide which edition of
a particular book they intend to use. For example, the parties can choose
the Silver Book in the 1999 or 2017 edition.
All of the above-mentioned factors contribute that EPC-contracts are
now gaining popularity in such countries as Ukraine, Belarus, Kazakhstan
and Russia. Denitely, such trends have caused an incredible interest in
the scientic community regarding features of EPC-contracts using and
the mechanisms of their proper adaptation to the requirements of national
legislation. This scientic article is focused on the study of these issues.
At the same time, Russia’s military aggression against Ukraine which
began on February 24, 2022, posed new challenges to the economy of the
country due to the prolonged nature of the warfare. The consequences of this
tragic situation for Ukraine, which aected the eld of capital construction
according to the concept of EPC, will be analyzed in this study as well.
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1. Methodology of the study
Analysis of concluding experience and implementation of EPC-
contracts in the Post-Soviet Union States involves the use of several leading
approaches of scientic knowledge. The main of them are based on the
following methods: system analysis, synthesis, comparative legal and
structural logic, etc. Among the general scientic methods of cognition in
the study of «EPC-contract nature», the method of system analysis played
a signicant role in identifying the key features and nding out the role of
FIDIC contracts in the eld of capital construction.
It was carried out an analysis of existing legislation researches regarding
EPC-contract use in Ukraine, Russia, Kazakhstan and Belarus in view of the
fact that capital construction regulations and contract law in those countries
are largely similar. Also, the synergetic method helped to combine the
results of the research in the scientic and practical elds. The comparative
law method has been also used to compare the rules of law from dierent
jurisdictions.
The application of the system analysis and synthesis methods helped
to identify common and distinctive features in the approach to the use
of EPC-contracts within the relevant jurisdictions, considering that the
above-mentioned states belong to the Romano-Germanic legal tradition.
This stems from the fact that belonging to the same legal tradition (family)
does not make the identical legislative approach for dierent states, which
signicantly complicates the process of EPC-contracts adaptation with the
aim of universalizing its provisions.
Also, the method of legal modelling was also applied, which aimed to
study a certain phenomenon (model) that arises in one or another country,
in particular, attention is paid to the prospects of further use and execution
of EPC-contracts in the conditions of full-scale armed aggression of the
Russian Federation. This method helped to analyze existing problems in the
industry and outlined the range of prospects for its further development.
2. Analysis of recent research
There are an insignicant number of studies that are focused on the
issues of concluding and executing of EPC-contracts in the Post-Soviet
Union States. Basically, researches are related to a general overview of
the practice of applying the FIDIC contracts provisions in a particular
jurisdiction. Such studies are caused by the eorts of individual states to
improve legislation identically to the standards of Eurocodes (Kazakhstan)
or targeting the aim to make FIDIC standard forms more applicable within
the rules of the national law (Ukraine, Belarus, Russia).
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Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
Provisions of the Ukraine, Belarus, Kazakhstan and Russian legislation
as well as the rules of international law make the empirical basis of this
research. The empirical basis also includes analysis of practical cases and
best market practices. It also consists of regulatory and legal acts that were
developed to improve the implementation of FIDIC contract provisions and
the involvement of the legal environment.
These might include Methodological recommendations for the application
of standard FIDIC contracts taking into account the requirements of the
Republic of Belarus legislation in the eld of construction, approved by the
Decree of the Ministry of Architecture and Construction of the Republic of
Belarus No. 67 dated July 07, 2021 (Decree No. 67, 2021), Decree of the
Cabinet of Ministers of Ukraine (On amendments to the general conditions
for the conclusion and execution of contracts in capital construction) No.
224. dated March 17, 2021 (Decree No. 223, 2021), etc.
The theoretical foundation of this research is based on the works of
theoreticians and practicing lawyers that are connected with the study of
EPC-contracts and the possibility of their adaptation within the legislation of
the respective country. For example, K. Sabirov and Y. Yesimkhanov explore
contradictions between the rules of Kazakh legislation and provisions of
EPC-contracts, developed by FIDIC (Sabirov, 2018; Yesimkhanov, 2013).
The practical application of EPC-contracts in Ukraine was analyzed in
studies by S. Teush (Teush, 2013, 2018), I. Sukhostavets (Sukhostavets,
2019) and M. Hritsyshyna (Hritsyshyna, 2021) and a similar study about
Kazakh legislation was made by A. Idayatova (Idayatova, 2019).
On the other hand, V. Varavenko has made a comparative legal analysis
of FIDIC contracts (including EPC-contracts) and provisions of Russian
legislation (Varavenko, 2019). V. Lypavskyi together with colleagues,
carried out a study of the practice of the EPC-contracts application in the
Russian Federation (Lypavskyi, 2019).
Also, specialized research regarding the legal and practical aspects of
EPC-contracts using in renewable energy area was made by V. Ostrynskyi,
N. Nykytchenko and other scientists (Ostrynskyi et al., 2022). The
authors have analyzed the main aspects of EPC-contracts adaptation and
made practical recommendations for concluding such contracts while
construction of renewable energy facilities in Ukraine.
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3. Results and Discussion
3.1. ЕРС-contract: denition, basic characteristics and
concluding features
In the Post-Soviet Union States, relations in the eld of capital
construction are developing at a rapid pace, national legislation does not
have time to carry out its proper legal regulation, which forces business
entities to use the norms of foreign jurisdictions or pro formas developed by
international specialized organizations for contractual transactions. These
also had been encouraged by international investors, which know that the
legal systems of Ukraine, Belarus, Russia, Kazakhstan, etc. are imperfect, so
they try to protect their own capital and investments as much as possible.
Therefore, nowadays, legal scholars are paying a lot of attention to EPC-
contracts, the main lobbyists of which are international investors.
The legal nature of EPC-contracts is pretty complicated. For example,
S. Oberkovych. notes that there is no separate analog of the EPC-contract
in Ukrainian legislation. From the point of Ukrainian law, EPC is a mixed
contract containing the terms of several contracts: provision of engineering
services, construction contract, execution of design works, and goods
supply. Therefore, in the case of EPC-contract subordination to Ukrainian
law, legal requirements for all the above-mentioned contracts shall be
reected in the text of the agreement (Oberkovych, 2019). We also need to
point out that model forms of FIDIC contracts and EPC-contract as well,
contain denitions that do not correspond to the legislation of Ukraine.
1. Goddard interprets the term “EPC-contract” through the
disclosure of its subject composition. In particular, the scientist
notes that EPC-contractor is a general contractor who performs
the main scope of work for a «xed price» and takes all the
risks of its implementation from the moment of design to the
moment of handing over the nished object to the employer
(including the fullment of warranty obligations and nancial
responsibility).
2. The EPC-contractor manages certain types of “own” works and
does not have an opportunity to manage the project as a whole. Also,
the scientist notes that, as a general rule, an EPC-contract should be
understood as a contract for the construction of a “turnkey” facility
with a xed (lump) sum (Goddard, 2018).
In the view of V. Lipavskyi, EPC-contract is “full-cycle” agreement,
according to which the contractor is responsible for the engeneering,
supply, construction, and commissioning of the facility. The EPC-contract
is usually used in cases when the employer does not have enough human
836
Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
resources which able to manage the construction project or doesn’t want to
be involved in such management to share the relevant risks. Also, EPC is
one of the main contractual forms in projects that are nanced with the help
of banks or other nancial institutions (especially with regard to project
nancing), because creditors are likely when the developer (the employer)
takes as few risks as possible (Lypavskyi, 2020).
A somewhat pragmatic approach has I. Chumachenko, who reduces the
concept of EPC-contract to a combination of the general contractor and
general designer role in one person, but at the same time highlights the
feasibility of such a combination only in cases of implementation of a large-
scale infrastructure project in which there is a need of deadline control for the
performance of works. In other cases, the legal practitioner advises dividing
the development of project documentation and its implementation between
dierent entities to ensure dispassionate control over the implementation
of construction works by the general contractor (Chumachenko, 2015).
According to I. Sukhostavets, the legal nature of EPC-contracts is quite
polemic. Some researchers consider that such contracts belong to the so-
called “soft law” or “non-legal soft law”, others attribute these proformas
to the “lex constructionis” – a system of non-governmental regulation of
international construction contracts, which reects the trade customs
as well as typical conditions of international construction contracts. In
accordance with “lex constructionis”, FIDIC develops recommendations
in the form of proformas, model contracts, standard regulations, and legal
adjustments used by customers and contractors while concluding contracts
for the realization of capital construction projects (Sukhostavets, 2019).
Therefore, summarizing all the mentioned above, it is possible to identify
the main features that lawyers most commonly characterize EPC-contracts:
• shall be concluded in writing only;
• suitable for construction of the facility on a «turnkey» basis, for
which it doesn’t contain a closed list of rights and obligations, which
results in allocation a lot of project risks on the contractor;
• always has a lump sum (xed price), which could be changed only at
the initiative of the parties.
• delay in the execution of one of the parts of the EPC-contract may
lead to increasing the terms of project execution as a whole (for
example, a delay in the design leads to a delay in the start of delivery
or construction);
• usually governed by rules of English law;
• can be expanded or amended by additional contractual constructions,
for example representation, loan provisions, credit, etc;
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• contains provisions for limitation of liability for the parties;
• the employer has a limited list of powers related to the impact on the
EPC-contractor or subcontractors;
• violations made by subcontractors do not entitle the contractor to
postpone project implementation dates or exempt from liability;
• engineering, supply, and construction shall be performed
simultaneously which signicantly reduces the terms of project
implementation in comparison with construction using the multilot/
multi-prime approach.
One of the main principles that allows the conclusion and execution of
EPC-contract is freedom of contract, which provides the parties with the
right to choose the type of contract, in particular by concluding a mixed
contract. In Ukrainian legislation, the principle of freedom of contract is
enshrined in article 627 of the Civil Code of Ukraine (hereinafter – CCU),
which stipulates that according to article 6 of CCU the parties are free to
enter into a contract, choose a counterparty and determine the terms of the
contract, taking into account the requirements of the CCU and other acts
of civil legislation, business practice, requirements of reasonableness and
fairness (The Civil Code, 2003: article 627).
While analyzing this legal rule, it became clear that in terms of the way
the content is presented, it is referential and blanket, because it contains
a reference to both specic legal rules and the legislation as a whole.
Therefore, article 627 of CCU can be a classic example, of when the “spirit
of the law” is wider than the “letter of the law”.
A similar principle is enshrined in article 421 of the Civil Code of the
Russian Federation (The Civil Code of the Russian Federation, 1994:
article 421), article 380 of the Civil Code of Kazakhstan (The Civil Code
of Kazakhstan, 1994: article 380), and article 391 of the Civil Code of the
Republic of Belarus (The Civil Code of the Republic of Belarus, 1998: article
391). Moreover, the wording used in the last two Civil Codes is, for the most
part, identical, which once again indicates the similarity of the approach to
the regulation of social relations in these states.
The principle of freedom of contract plays a key role in the development
of economy and market relations. However, the operation of the principle
of freedom of contract has certain exceptions, assigned in legislative norms.
For example, article 380 of the Civil Code of the Republic of Kazakhstan
prohibits compulsion to conclude a contract, while clarifying that this does
not apply to cases where the obligation to conclude a contract is provided
for by the legislation or a voluntarily accepted obligation (Sabirov et al.,
2020).
The Belarusian legislator has provided the principle of freedom of
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Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
contract with the following content in article 22 of the Civil Code: “Citizens
and legal entities are free to conclude a contract. The compulsion to conclude
a contract is not allowed, except when the obligation to conclude a contract
is provided for by the law or a freely assumed obligation” (The Civil Code of
Respublika of Belarus, 1998: article 22). N. Bondarenko emphasizes, that
such wording of the law should be declared unt. The principle of freedom
of contract cannot be reduced to the freedom to enter into contractual
relationships only. It works at all stages of contractual relations until
termination thereof. Freedom of contract enables parties of the contractual
relationship to initiate succession, entering into a claim assignment or debt
transfer agreement (Bondarenko, 2016).
At the same time, the possibility of implementing the principle of
freedom of contract by business entities is a starting point that allows the
conclusion of the mixed contract on the territory of the Post-Soviet States,
which in particular, includes EPC-contracts.
According to the general approach, EPC-contracts consist of two
parts: General Conditions and Particular Conditions. In order to avoid
disagreements during the execution and conclusion of it, FIDIC had made
so-called “Golden Principles”:
GP1: The duties, rights, obligations, roles and responsibilities of all
the Contract Participants must be generally as implied in the General
Conditions, and appropriate to the requirements of the project.
GP2: The Particular Conditions must be drafted clearly and
unambiguously.
GP3: The Particular Conditions must not change the balance of risk/
reward allocation provided for in the General Conditions.
GP4: All time periods specied in the Contract for Contract Participants
to perform their obligations must be of reasonable duration.
GP5: Unless there is a conict with the governing law of the Contract,
all formal disputes must be referred to a Dispute Avoidance/Adjudication
Board (or a Dispute Adjudication Board, if applicable) for a provisionally
binding decision as a condition precedent to arbitration (FIDIC, 2019).
As noted by I. Sukhostavets, after the publication of the FIDIC Golden
Principles, the contractual principles of the standard forms of the FIDIC
contracts became considered as untouchable. The Golden Principles are
designed to limit the abuse of FIDIC contract terms and refer that using
of the FIDIC General Conditions that do not comply with the Golden
Principles would be interpreted as misrepresentation and irrelevance.
At the same time, the scientist emphasizes that a violation of the FIDIC
Golden Principles can result in a balance upset of the risks and cause losses,
litigation, or termination of the contract (Sukhostavets, 2021).
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Hereby, EPC-contract can be attributed to a special type of mixed
contract, concluded in accordance with standard forms, developed by an
international specialized organization, according to which the contractor is
responsible for the engineering, supply, construction, and commissioning
of the facility within the specied time and the employer is obliged to hand-
over the site to the contractor in proper condition and to pay for the scope
of work at a “xed price” according to the approved payment schedule.
Also, the application of EPC contracts in the Post-Soviet Union
States would be impossible without the establishment of fundamental
legal principles in their legislation, such as the principle of freedom of
contract and the principle of autonomy of will, which makes it possible to
distinguish an EPC-contract from other mixed contracts and helps to make
amendments by contractual structure and accessory obligations (parent
company guarantee, bank guarantee, pledge, etc.), as additional guarantees
which the parties provide to each other, or within the limits of those
requirements that may be put forward by nancial institutions (banks,
credit-export agencies, etc.).
3.2. The main risks in conclusion and execution of EPC-
contracts in the Post-Soviet Union States
Legal researches of the construction industry development at the
modern stage are becoming more and more connected with the availability
of guarantees in contractual relations, which play an important role in risks
minimization for its participants, which are interested in the successful
implementation of the project because the number of problems and threats
related to the activities of construction industry entities is gradually
increasing.
The purpose of risk distribution is to nd a balance between the interests
of the contracting parties and the existing legal regulation of social relations.
Of course, in the absence of qualied legal assistance, the possibility of
placing the risk on a party that cannot bear it, due to legal regulations or
established business practice, should not be excluded.
The full-scale invasion of the Russian Federation on the territory of
Ukraine forced investors to reconsider the risk management system. This
also applies to the construction industry, which has been greatly aected
by war. Many construction projects based on the EPC model have been
suspended, and some have been canceled. However, the nature of war,
according to the experts and world leaders, will be protracted, which
forces businesses to look for new ways and mechanisms not only to protect
existing projects but also to potentially preserve the prospect of restoring
projects in the future.
840
Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
In practice, as a rule, the risk-sharing between the contracting parties
can be regulated both during the signing of the contract and after it. The
second option is possible due to the inclusion of two clauses in the wording
of the agreement regarding:
• the application of the Principles of International Commercial
Contracts, developed by the International Institute for the Unication
of Private Law (hereinafter - UNIDROIT), as part of substantive law,
according to which contractual relations are regulated;
• the settlement of disputes in international commercial arbitration.
As a legal denition of the exclusive nature of the above-mentioned
clause, the UNIDROIT Principles of International Commercial Contracts
introduced a neutral denition for all legal systems as “substantial injustice”
(UNIDROIT, 2016), through the prism of which the courts should interpret
the terms of the contract without detaching from its purpose.
UNIDROIT Principles of International Commercial Contracts belong to
the so-called soft law, which in turn belongs to the “Lex mercatoria” group
(extranational commercial law). The last edition of the mentioned principles
was issued in 2016. This document was developed by authoritative experts
in the eld of international contract law and used by national courts and
international commercial arbitrations as well.
Among the legal systems of the Romano-Germanic legal family, the
prevalent approach is placing the risk on the party for which bearing risk
is the least costly. As a rule, such a party can control risks due to eective
management of its own operational and economic activities with minimal
nancial losses or by insurance or reinsurance of risks. This approach is
based on the principle of economic feasibility. O. Volovyk represents a
thesis that allocation of contractual risks between the parties should be
made by using of mentioned principle exclusively. In turn, the application
of the specied approach can be implemented with the help of dispositive
and imperative methods of risk-sharing (Volovyk, 2013).
While analyzing the practice of concluding contracts according to FIDIC
proforma in the Republic of Kazakhstan, Y. Yesimkhanov notes that the
application of the FIDIC forms in Kazakhstan has a number of features
and specics that must be taken into account in order to make a positive
eect on the application of such forms. Some of these specic features
are associated with the peculiarities in the functioning of Kazakhstani
legislation, others are connected with the fact that Kazakhstan has not yet
developed the relevant practice and regulatory framework (Yesimkhanov,
2013). The scientist enumerates some practical issues of EPC application in
Kazakhstan, but the given list of issues can be much wider.
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The FIDIC forms contain a large number of references to the term’s
“acceptability”, “rationality”, and “reasonableness”. In the analysis of such
denitions, it’s usually clear that the сontractor must act “as a reasonable
Contractor, taking into account the best interests of the Employer.” Similarly,
the уmployer must “demonstrate reasonable behavior” (Yesimkhanov,
2013). The presence of such norms can be explained by the set of business
customs that have been developed around any standard form of contract.
And that’s why the rules of “reasonable behavior”, which in Kazakhstan
look like a simple declaration, in most European countries have very specic
content. Unlike European countries, the contract parties in Kazakhstan will
put their own meanings into such norms, which will be denitely dierent
from each other and from those explanations that the competent court will
make.
However, Y. Yesimkhanov does not recommend unreasonably removing
or amending such norms while application in Kazakhstan. The application
of these rules depends on which court will consider the disputes under
the contract. In the event, when EPC-contract has been executed between
the employer and the сontractor, which are registered in dierent states,
the parties are likely to submit the relevant dispute for international
arbitration. Also, it is recommended to settle the issue of approving design
documentation while applying FIDIC forms in Kazakhstan. This will help to
avoid such problems as, for example, incorrect estimation of the time frame
required to complete the project by the contractor.
The main question related to the structure of the contract while applying
the FIDIC forms in Kazakhstan is whether does it make sense to use a
complex two-component contract structure? There are no reasons why
such a structure cannot be applied in Kazakhstan. In order to simplify
the contract, a lot of parties prefer to combine the General conditions and
Particular conditions by transferring provisions of the second one to the
rst one and including them in the corresponding articles. However, in this
case, parties should be careful and take into account the court which shall
consider the dispute under the contract.
Unfortunately, it was not possible to nd research that would be focused
on practical aspects of risk control while executing of EPC-contracts in the
Republic of Belarus. Instead, a lot of researches which are devoted to the
study of this problem were made in the Russian Federation.
I. Suzdalev, a partner of the Ostlegal law rm, while researching ways
to ensure the fulllment of obligations under the EPC-projects, notes that
according to current practice, the fulllment of the contractor`s obligations
is usually ensured by two guarantees:
1. advance payment refund guarantee;
842
Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
2. performance bond.
The expiration of the period for which the guarantee was issued excludes
the possibility of presenting claims according to it. In connection with this,
the guarantee should provide the mechanism of its extension in case of
its expiring, and the work (or the warranty period) is not completed. For
this purpose, the clause regarding the extension of warranty period should
be included in the EPC-contract and guarantee wording as well. In case,
when such an extended guarantee is not granted, the employer is entitled to
recover the entire amount of the previously granted (expiring) guarantee.
The legal status and the fate of the amount collected in this way are likely
to be xed in the EPC-contract. The amount of the retention money may be
qualied as a penalty for the failure to provide an extended guarantee to
the employer. At the same time, there is a signicant risk that the amount
of such a penalty will be signicantly reduced by the court on the basis of
article 333 of the Civil Code of the Russian Federation (Lypavskyi, 2019).
If we are talking about the risks that may occur while signing and
implementing EPC-contracts in Ukraine, it is also impossible to provide
an exhaustive list. However, we will still try to consider the most common
situations where risks can be avoided or risk management opportunities
can be foreseen.
Ukrainian employers, as a rule, prefer to control the construction process.
Therefore, in most cases, the employer or the consulting engineer carries
out a lot of checks, measurements, and other controls. Meanwhile, the
imperative rule contained in article 853(1) of the CCU says: “The employer
is obliged to accept the work performed by the contractor in accordance
with the contract, inspect it and, in case of deviations from the terms of the
contract or other deciencies admitted in the work, immediately report the
contractor about that. If the employer does not make such a statement, he
loses the right to refer to these deviations from the terms of the contract
or deciencies in the work performed in the future.” (The Civil Code of
Ukraine, 2003: article 853).
It should be emphasized that the specied rule of the CCU is fundamentally
dierent from the existing international practice. For example, a lot of the
FIDIC model contracts are based on the reverse principle: the approval of
the performance of any work or the absence of comments by the employer
in no case exempts the contractor from responsibility for committed
violations.
Most of standard forms of contracts developed by FIDIC require the
contractor to complete the work by a specied time, either by a specied
date or within a specied number of days, weeks or months. Along with
this, the contractor usually uses the provisions regarding limitation of
liability and liquidated damages as a previously prepared legal protection.
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According to the generally accepted approach, the concept of «liquidated
damages» means damages whose amount the parties designate during the
formation of a contract for the injured party to collect as compensation
upon a specic breach (e.g., late performance).
The parties, as a rule, agree that the xed amount of compensation
cannot exceed the total value of the entire EPC-contract and calculates as
a percentage for each day or week that has passed since such delay. At the
same time, the Ukrainian legislation does not contain such a concept as
«liquidated damages». Instead, there are provisions of article 216 of the
CCU, which contains an indication that economic and legal responsibility is
based on the principles according to which:
• the injured party has the right to compensation for damages
regardless of whether there is a clause to this eect in the contract;
the manufacturer’s (seller’s) liability for poor quality products
provided by law also applies regardless of whether there is a clause
to this eect in the contract;
• payment of nes for breach of obligation, as well as compensation
for damages, do not release the oender without the consent of the
other party from fullling the accepted obligations in kind;
• clauses regarding the exclusion or limitation of the liability of the
manufacturer (seller) of products are unacceptable in the business
contract.
Hereby, there are existing contradictions between the provisions related
to compensation for damages under the EPC-contract and Ukrainian
legislation. However, there is a way out of the situation, because when the
party of the agreement is a non-resident company, it gives the opportunity
to regulate contractual relations according to the norms of certain
jurisdictions on their own. As a rule, this is the application of English law,
which allows the parties to limit their liability under the contract. However,
in this case, there should be a direct indication of this matter in the text of
the EPC-contract itself.
Conclusions
It can be concluded, that during the implementation of capital
construction projects under EPC-contracts in the Post-Soviet Union States,
contracting parties should take into account the occurrence of not only
controlled risks: delay in receiving town planning documentation, untimely
delivery of components and materials, inadequate quality of performed
works, but attention should also be paid to the occurrence of uncontrollable
risks, which often have a political nature, in particular: armed aggression,
war, change of political regime, international sanctions, etc.
844
Volodymyr Ustymenko, Vladyslav Teremetskyi, Kateryna Bida, Petro Denysyuk y Nataliia Novytska
Experience of conclusion and performance of engineering, procurement and construction
contracts in post-Soviet countries
Right now, uncontrolled risks play a signicant role in stiing the
development of the construction industry in Ukraine. The Ukrainian
Chamber of Commerce and Industry evidenced force majeure circumstances
(force majeure): military aggression of the Russian Federation against
Ukraine, which led to the imposition of martial law from 05:30 on February
24, 2022 (The Ukrainian Chamber of Commerce and Industry, 2022). This
document made it possible to remove responsibility from the contractual
parties for the non-fulllment of the terms of EPC-contracts throughout the
territory of Ukraine.
However, it is still too early to talk about a complete shutdown of
the industry. In the controlled territories, the construction projects
of renewable power plants, which, according to our data, are partially
implemented according to the EPC concept by foreign contractors, continue
the construction. The Tiligulska wind farm project currently located in the
Mykolayiv region, on the territory of which active hostilities are taking place,
can be an example of this. Such a conclusion can be made after analyzing
the decision of the National Regulator, dated 06.14.2022 about increasing
of the installed capacity of the wind power plant to 36 MW (NEURC, 2022).
A dierent situation occurred in the Republic of Belarus and the Russian
Federation, where under the inuence of sanctions pressure, construction
projects based on the EPC concept are suspended or completely canceled.
An example of such a project is the construction of the LNG-terminal «Arctic
LNG 2», where Technip Energies refused to participate, following the Maire
Tecnimont which also stopped participating in the implementation of EPC
projects in Russia (Interfax, 2022).
Almost nothing is known about the suspension of EPC projects in
Belarus, probably due to the presence of a high level of political censorship
in the country.
Thus, the situation in Kazakhstan looks like the most stable and
predictable, where EPC projects are not under such a high threat, and the
political autocracy does not foresee a sharp change of power and guarantees
political stability. Also, an indicator of this is the high interest among
Kazakhstani scientists and a sucient number of legal studies on the issues
application of EPC-contracts according to FIDIC proforma, which were
analyzed in this research.
Summarizing the above, we can conclude that proper legal adaptation
of the FIDIC Silver Book to the legislation of the relevant Post-Soviet
Union State is a necessary, but not sucient condition for avoiding risks
associated with the impossibility or improper execution of EPC-contracts.
Lawyers should pay attention not only to the form of the main contract
(Contractual Agreement does not contain basic conditions); permissions
and consents; terminology while translating into the appropriate language
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(works, employer, site); wording from English law (such as “acceptability”,
“rationality”, “reasonableness”); arbitration clause; applicable
language (agreement, documentation, correspondence); procedure for
commissioning of the facility, but also on the possibility of insuring the
occurrence of the so-called political risks.
This approach makes it possible to cover part of the losses (let’s be
honest, insurance companies, as a rule, will not be able to compensate the
entire amount of damage caused in large-scale projects), which were caused
by armed aggression or the imposition of sanctions by third countries and
makes implementation of project impossible (Jones Day, 2022).
Also, it should be emphasized that the above list is not exhaustive, and
the adaptation process must take place on the condition of obtaining a
license from FIDIC to make changes to the standard form of the contract in
line with the copyright of the developers on its wording.
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Esta revista fue editada en formato digital y publicada
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