Quality control of road construction: consulting engineers and FIDIC contracts are coming into focus

On 3 March 2017, the new requirements were enacted in Ukraine related to the quality control of new construction, reconstruction and repair works of the motor roads of general use, approved by Resolution No.1065 of the Cabinet of Ministers of Ukraine on 28 December 2016 (the "Resolution").

The Resolution factors in a consulting engineer into the system of quality control and technical supervision of road construction works, and makes an express reference to the FIDIC's conditions of contract which engineers should take into consideration. The Resolution further defines the scope of the engineer's authorities and sets the framework for interactions among the employer (the client in construction), the engineer and the contractor.

Key issues

  • Quality control system to improve in road construction
  • Сonsulting engineers to be involved in quality control process
  • FIDIC's international best practices to promote in construction
  • Issues around implementation and expected legislative improvements

Background and drivers for improving the quality control in road construction

The Resolution was adopted within the broader framework of the governmental Concept of Reforming the State Management System of the Motor Roads of General Use, which put an emphasis on the critical role of the quality control and technical audit of roads for improving their operational condition, and recognised the need for introducing the principles of impartiality and independence in this field as well as for the adaptation of Ukrainian legislation to facilitate the use of the FIDIC's conditions of contract.

The drivers behind are multiple, and include:

  • intensification of donor and other internationally sponsored projects where FIDIC's conditions of contract are used;
  • striving for international competitiveness and appeal of the local market in front of international investors;
  • a сritical need in rehabilitation, modernisation and reinforcement of the existing infrastructure, transport, production and other facilities;
  • the evolving self-institutionalisation and self-governance of the industry, etc.

One of the main triggers is Ukraine's ambitious commitments under the EU-Ukraine Association Agreement toward liberalizing and opening up the Ukrainian market, creating the level playing field and better integrating it into the European regional setting.

As an independent and professional service provider, the consulting engeneer is a key figure of construction projects in European and international practices. It ensures integration and management of complex multiple interactions of different participants to a construction project, and prompt professional management of their claims. Such interactions and claim management procedures are detailed in different types of the FIDIC's contracts, which vary depending on the delivery method, risk allocation principles and other criteria.

In Ukraine, FIDIC's conditions of contracts are used primarily in large international construction and infrastructure projects funded by international finance institutions (EBRD, the World Bank, etc.), while the local practice tends toward using more plain and short forms of contracts. FIDIC's contracts forms known as "Red Book" and "Yellow Book" are the most common in Ukraine, while most of the other documents developed by FIDIC remain practically unknown and are underused, namely: "Blue-Green Book" (Form of Contract for Dredging and Reclamation Works), "Silver Book" (EPC Turn-key works), "Gold Book" (Conditions of Contract for Design, Build and Operate Projects), FIDIC Procurement Procedures Guide, etc.

The status and powers of the consulting engineers defined

According to the Resolution, a consulting engineer is defined as a person rendering road consultancy services or an international auditor. Notably, the Resolution makes an express reference to the FIDIC's conditions of contract which the consultants should take into consideration while performing services. We would not consider this as incorporation by reference of the FIDIC's conditions of contract into Ukrainian law, rather, as the guidance and best practices to follow by consulting engineers.

The Resolution assigns the engineer to ensure the proper quality of road construction works, and vests with considerable powers, including the approval of takeover certificates and their submission for payment to the employer, making determinations on the contractor's claims for an extension of time, keeping guarantee and compliance certificates, etc.

Consulting engineers will not substitute employers (clients in construction) who will remain in charge of ensuring technical supervision. However, employers will now be required to engage consultant engineers in this process and comply with the applicable requirements of the Law of Ukraine "On Public Procurement".

The Resolution does not establish requirements to the form of such consultancy agreements. We do not exclude that such form can be elaborated in the future, and recommended for use, based on the FIDIC's "White Book" ("Client/Consultant Model Services Agreement").

Consequences of implementation and further legislative developments

The new requirements to the quality control in construction, introduced by the Resolution, will be implemented gradually: until 1 January 2018, the Resolution will apply only to the works for new construction, reconstruction or capital repairs of the motor roads of general use. However, by the logic and concept of the construction reform, a similar approach may be expected to apply to the quality control system and technical supervision and apply to other types of construction works not limited to the road sector.

We note, however, that the requirements do not provide a perfect or comprehensive guidance, and can be further streamlined and amended. Some of the potential areas for improvement include: refining the definition of a consulting engineer and the scope of its authorities, specifying the mechanisms and consequences of different interactions among the consulting engineer, the employer and the contractor, ensuring the consulting engineer's impartiality and independence, determining the scope and limits of its liability, its role in the claim management and dispute resolution procedures, etc.

Although certain improvements may be necessary, the new quality control requirements mark a significant step forward in the evolving reform of the construction industry in Ukraine and can help improve the quality of works as a result of demonopolisation of technical supervision and quality control and the enhancement of quality controller's independence and professional standards.

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