Concrete Contractors

Tender contracts: dangers in a nutshell and some practical advice for clients

It should be noted immediately that the contract is distinguished from the administration and, indirectly, the lawful contract is distinguished from the illegal one, due to the fact that in the first the business risk is incumbent on the contractor (i.e. on who renders the service) and the ‘ organization of the means necessary for performance of the contract.

This organization can also result – taking into account the current evolution of production systems, which can also be centered only on the rational management of the workforce – from the exercise of organizational and managerial power over the workers used in the contract.

We report a recent sentence of the Court of Milan which addressed the issue of the genuineness of the contract in an interesting case of logistics services (Court of Milan November 3, 2017, est. Lombardi).

In the present case it was specified that the organization of the means must be effective and substantial and can also be carried out by a genuine company. “Light” or “dematerialized” , in which the organization of the labor factor prevails over the capital, as long as it is suitable for satisfying the requirements set out in the contract.

In the case in question, as regards the existence of managerial and organizational power, it was found that:

  • most of the operations carried out in the contract were managed on the basis of predefined and codified IT processes;
  • the particular needs of the client, in relation to the quantities of work and processing times, could occasionally have an indirect impact on the shifts and the resources employed, the final choice of which, however, was the responsibility of the contractor;
  • sometimes there was a need to provide information on the part of the client about the terms, times and methods of carrying out the service but – according to the judge – in the absence of significant interference in the organization of the contractor.
  • The judge consequently ruled out that the fundamental nucleus of the organizational and managerial power over the workers used in the contract had remained with the client, thus affirming the genuineness of the contract.

International Procurement Rules to Reduce Disputes

International tenders (especially those relating to the construction of plants or infrastructures) are characterized by a high level of litigation and claiming is a very frequent constant, often for extra works, for requests for an extension of the delivery deadline, for requests for penalties for delays allegedly attributable to the Contractor (liquidated damages) or for the enforcement by the Client of the guarantees issued by the Contractor.

First of all, we must take note of the fact that contracts for the construction of infrastructures or industrial or production plants (which usually take the form of EPC -engineering, procurement and construction- or turnkey contracts), are generally very complex first of all for technical reasons related to the works to be performed (themselves very complex). Cultural reasons (think of the cultural and linguistic differences between the parties) increase the complexity of the contractual relationship between the parties.

For an overview of international procurement, our article International Procurement Agreement may also be of interest to you : what to negotiate before signing

The duration of these contracts is medium-long term (sometimes years) and this adds a further difficulty in the relationship between the client and the contractor both for the concrete possibility of changes to the initial conditions (think of the cost of labor or of raw materials) and because it is common for part of the management to change during a job order.

The rules of good project management are essential to bring a project to a successful conclusion and to minimize the risk of disputes.