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  • Writer's pictureRicardo Cuesta

Construction in Common and Civil law: understanding each other (1)

A new environment

Over fifteen years ago Spanish Construction Companies started their international expansion, and they are now successfully doing business in many different jurisdictions especially in those with a common law legal system, very different from the civil law background in Spain and in Europe.

This international expansion has been an extraordinary challenge for their Legal Departments and Engineers.

In-house counsels were used to deal with domestic transactions and to successfully navigate the intricacies (dealt with the intricacies) of Public Procurement, advising on applying the Spanish Public Contracts Act and litigating claims against owners in different governmental levels: national, regional and local.

The first challenge involved setting up a corporation in another jurisdiction and finding a reliable local law firm to help out.

The second challenge showed up soon: once the new company was incorporated and there was a vehicle ready to bid for new projects, the engineers sent to the new country started to send documents for the Legal Department’s review: Requests for Qualifications and long documents with specifications and schedules which made as realize that this new adventure was going to be really stressful.

There were many different new things to immediately learn and understand: Joint Venture Agreements with local partners and new bid processes.

Local partners and their counsels were very useful guiding the newcomers through the new laws and proceedings and in-house counsels learned that the bidding processes were very different from those in Spain.

When a project was finally awarded inevitably there was a need for variations, change orders and preparation of claims: everybody soon learned that the differences with how those issues were understood and managed in the new jurisdictions differed from how we were used to manage them in our country of origin.

Hopefully the new companies managed to set up Legal Departments with smart and seasoned local lawyers who helped us to understand the new legal environment through training and patience.

The international expansion has not only been an extraordinary challenge for in-house counsels, but also for the engineers transferred to the new countries who had to quickly learn to manage the biddings and the contracts in a different way than they were used to doi in their home countries.

The purpose of these series of posts I am starting today is to try to explain to common law lawyers what lawyers and engineers educated and trained in a civil law jurisdiction have in their minds regarding construction contracts so that they may be in a better position to understand their concerns and difficulties in adapting to a new legal environment.

Legal background

Spain has had a long tradition of public contract regulations starting in 1836 with the ‘General Conditions for Public Works’ and many others that followed thereafter and the first State Contracts Act enacted in 1965 (Ley de Contratos del Estado 1965). After becoming a Member of the European Union (EU), Spain enacted different legislation to adapt it to the EU Directives: Public Administrations Contracts Act 1995, amended in 2000, Public Sector Contracts Act 2007, amended in 2011 and, finally the current applicable Public Sector Contracts Act 2017 (Ley 9/2017 de 8 de noviembre de Contratos del Sector Público).

The freedom of European States to regulate certain matters is very much dependant on the decisions of the EU.

EU State Members have delegated into the EU the authority to decide on certain matters. The EU can approve a different variety of legislation. Some of those pieces of legislation are directly binding on all the State Members or on some of them (Regulations and Decisions) and others are not bonding (Directives, Recommendations and Opinions).

According to the definition in the official EU website, a Directive “is a legislative act that sets out a goal that all EU countries must achieve. However, it is up to the individual countries to devise their own laws on how to reach these goals”. This means that a Directive is not directly binding, and it must be transposed into national legislation.

The EU has enacted different Directives on a number of matters, and regarding public construction contracts, the current applicable instrument is Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on Public Procurement and repealing Directive 2004/18/EC.

The aim of the Directive is to ensure that the award of public contracts by or on behalf of Member State’s authorities complies with the principles of the Treaty on the Functioning of the European union (TFEU), ensuring further that public procurement is open up to competition. Those principles are:

  • Free movement of goods

  • Freedom of establishment

  • Freedom to provide services

  • Equal treatment

  • Non discrimination

  • Mutual recognition

  • Proportionality

  • Transparency

As we can see, the Directive is aimed to ensure the application of certain principles to the procurement of contracts, but States are free to organize the performance of those contracts. There is only one exception related to amendments to the contracts (variations and change orders) because only one party is entitled to make unilateral changes to a contract -and it is not the contractor- and the Directive puts some limits to that right, as we will learn in later articles.

The way in which contracts are being performed since the 1965 Act has not substantially changed. There have been many procedural changes but the fundamental manner to manage the contracts has always been the same and this is what I would like to explain in these articles so that my common law colleagues can better understand Spanish engineers working in a different legal environment.

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