Using Private‐Public Linkages to Regulate Environmental Conflicts: The Case of International Construction Contracts

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Cited in

Published date	01 March 2002
Date	01 March 2002
DOI	http://doi.org/10.1111/1467-6478.00212
Author	Oren Perez

JOURNAL OF LAW AND SOCIETY

VOLUME 29, NUMBER 1, MARCH 2002

ISSN: 0263-323X, pp. 77–110

Using Private-Public Linkages to Regulate Environmental

Conflicts: The Case of International Construction Contracts

Oren Perez*

The article takes a pluralistic view of the `trade-environment'conflict by

exploring one of the settings of this conflict: the lex constructionis –

international construction law. It seeks to unravel the way in which the

unique structural-cultural attributes of this legal domain have affected its

environmental (in)sensitivity. The article’s main argument in that context

is that the contractual tradition of the lex constructionis (as manifested in

the standard contracts that dominate this field) and its unique insti-

tutional structure, have created a culture of ecological indifference. This

culture has important practical consequences because of the deep

ecological problematic of international construction projects. The article

develops an alternative contractual model, which depicts the construc-

tion contract as a semi-political mechanism, rather than a private tool.

This conceptual change seeks to break the public/private separation that

characterizes the contractual discourse in the international construction

market. The article explores, further, whether this alternative contractual

vision could be realized in practice, and proposes several implementing

modules which could further this goal. While the article explores a

particular international regime, its methodology and conclusions – in

particular, the political-constitutional interpretation of the contract and

the critique of the public/private dichotomy (see sections III.3 and III.4) –

should be relevant to the regulation of many other (national or

international) environmental dilemmas.

The tension between environmental concerns and the global economic

system has been a recurrent theme in the recent wave of anti-globalization

protests – from Seattle 1998 to Quebec and Genoa 2001. The environmental

‘cause’ was invoked again and again in numerous street protests, pamphlets,

ßBlackwell Publishers Ltd 2002, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA

*Faculty of Law, Bar-Ilan University, Ramat-Gan, Israel 52900

The article draws on the research I did for my PhD thesis during 1997–2000 at the

London School of Economics and Political Science. It has benefited from the comments

of my two supervisors at LSE, Professor Gunther Teubner and Mr. Damian Chalmers. I

would also like to thank Professor Sol Picciotto for his comments on an earlier draft of

this article.

and radical websites. The apparent unity of action, which seemed to conjoin

these multiple acts of protest, is, however, highly misleading. In the first

place, the image of a single-minded, homogeneous movement is clearly

unfounded. Behind the protests at Seattle, Quebec, and Genoa lies an

amalgam of different groups and multiple ideologies. But this apparent unity

is misleading also in that it has projected a false picture of a unified global

economic system. The description of the Bretton Woods triad and the

multinational enterprises community as a kind of monstrous, anti-social and

anti-environmental transnational cartel is clearly too simplistic as a

characterization of the global economic field. This article rejects this

simplistic binary story. It pursues a different narrative, which is based on the

following thesis: the trade and environment conflict should not be seen as a

uni-dimensional problematic, a clear binary discord, but, rather, as a

reflection of multiple dilemmas – constituted and negotiated by a myriad of

institutional and discursive networks.

Developing an understanding of this conflict requires a multi-dimensional

perspective. One of the major blind spots of the current legal research in this

context is its myopic focus on the World Trade Organization. The ‘trade and

environment’ research programme has failed to take into account the

pluralistic nature of the contemporary global legal sphere. Far from being

homogenous, this sphere consists of multiple systems, which include, on the

one hand, traditional, treaty-based legal structures (for example, the WTO or

the IMF), and, on the other, a-national, or private legal networks (for

example, the lex mercatoria); together, this diverse network constitutes a

complex web of transnational governance.

The influence of this ‘web’ has

not been confined, however, to the economic realm; it has encroached deeply

into various aspects of our civic life – including the environment.

The thesis of global legal pluralism reconstructs the ‘trade and

environment’ conflict, then, as a multi-faceted dilemma, which is not

limited to the WTO. It makes clear that international trade – with its various

ecological side-effects

– is governed by multiple systems of law rather than

These a-national, or private networks, are not made of the familiar legal sources of

public international law, such as international treaties and state-practice, but are, rather.

the result of (private) norm production by trade associations, independent professional

organizations, commercial arbitrators, and multinational enterprises. See G. Teubner,

‘‘‘Global Bukowina’’:Legal Pluralism in the World Society’ in Global Law Without a

State, ed. G. Teubner (1997) 3. The establishment of the WTO did not impede the

growth of these a-national systems of law. On the contrary, the economic environment

of expanded international commerce, which was facilitated and encouraged by the

WTO, provided fresh stimulus to these processes of private rule-making.

For those who still doubt the existence of these side-effects, see, for example, R. Jha

and J. Whalley, ‘The Environmental Regime in Developing Countries’ (paper pres-

ented at a NBER/FEW conference on ‘Distributional and Behavioural Effects of

Environmental Policy’, Milan, 11–12 June 1999, available at

cidtrade> and W.D. Sunderlin et al., ‘Economic Crisis, Small Farmers’ Well Being,

and Forest Cover Change in Indonesia‘ (2001) 29 World Development 767.

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by any single system. A proper analysis of the trade-environment conflict

must be sensitive, therefore, to the composite nature of contemporary global

law. This article takes a closer look at one of the ‘private’ manifestations of

this multi-faceted conflict: international construction law (the lex

constructionis) – an important branch of the lex mercatoria.

The relevance

of this field of law to environmental studies stems from the fact that

construction activities – particularly those associated with large infra-

structure projects – can generate significant environmental damage.

Any

construction activity modifies the land or habitat in which it is taking place.

This damage, is highly varied, and includes loss of biodiversity, reduction in

the stability of land formations, and contamination of water resources. The

large volume of waste generated by construction operations can cause further

environmental degradation.

The interference of the construction activity in the eco-system and human

community, which hosts it, could give rise to bitter social disputes, driven by

conflicting interests, values, and discourses. This article explores the way in

which international construction law has confronted this construction-

environment dilemma. While this exploration takes place in the context of a

particular legal regime, its methodology and conclusions – in particular, the

critique of the private/public regulatory separation and the cooperative

regulatory model (which are developed in sections III.3 and III.4) – should

be relevant to many other environmental dilemmas taking place at national

or transnational levels. This alternative regulatory vision is consistent with

the increasing recognition among environmental researchers that, to be

successful, environmental policy must adopt a multi-dimensional strategy.

The article proceeds as follows. Section I outlines the environmental

world-view, which guides the discussion in the rest of the article. This world-

view is based on a political interpretation of the ecological ‘project’. Section

II considers the nature of the lex constructionis as an autonomous system of

law, and attempts to unravel the reflexivity structure of this legal system,

3 The term ‘lex constructionis’ was first suggested in C. Molineaux, ‘Moving Toward

a Construction Lex Mercatoria: A Lex Constructionis’ (1997) 14 J. of International

Arbitration 55.

4 See, for example, the discussion in G. Ofori and P. Chan, ‘Contractual Provisions

For Sustainability in Construction in Singapore’ (1999) 16 International

Construction Law Rev. 241.

5 Construction activities also have indirect environmental effects, related to the impact

of the construction activity on the general sustainability of the local or global

economy, due to their intensive resource utilization and energy use. Ofori and Chan

note, for example, that in monetary terms construction activity utilizes up to seven

times as much wood, minerals, water, and energy as the rest of the economy (id., p.

242). This article focuses, however, on the direct effects.

6 See, for example, T. Tietenberg and D. Wheeler, ‘Empowering the Community:

Information Strategies For Pollution Control‘ (paper delivered at the Frontiers of

Environmental Economics Conference, Virginia, 23–25 October 1998, available at

the World Bank website, NIPR programme).

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focusing on two key factors: its communicative patterns and its

organizational features. This dual exploration points to two prominent

features of the lex constructionis: that its main communicative channel is

standard model-forms, and that its norm-production activity is controlled by

few non-state actors. The article focuses on one key international player –

the International Federation of Consulting Engineers (FIDIC) – which plays

a dominant role in the international construction market.

Section III seeks to decode the linkage between the structural-cultural

attributes of the lex constructionis and its environmental (in)sensitivity. It

argues that the contractual tradition of the lex constructionis, in particular, its

distinction between the ‘public’ and ‘contractual’ orders, have generated a

legal culture that was highIy inattentive to the ecological aspects of

construction practice.

This has important practical consequences because of

the deep environmental problematic of transnational construction projects.

My goal is not confined, however, to an articulation of institutional

‘blindness’. I am interested also in developing pragmatic alternatives. To this

end, I draw a distinction between the contractual heritage of the lex

mercatoria and a counter contractual vision, which depicts the construction

contract as a semi-political mechanism, rather than a strictly private tool.

This conceptual change seeks to break the traditional separation between the

‘public’ and ‘private’ realms – a division that characterizes most of the

standard contracts in the construction market.

Of course, the main challenge lies in developing detailed normative/

institutional configurations that would enable the realization of this

‘political/constitutional’ understanding of the contract. These configurations

should have a reasonable ‘fit’ with the commercial constraints of the

transnational construction market. The article offers some practical

reflections, which seek to respond to this challenge.

7 In exploring this ‘inattentiveness’ I was guided by the idea that any communicative

structure (for example, the legal system) is necessarily ‘blind’, or ‘closed’ to some

features of the world. This blindness, or closure, reflects the fact that communication

emerges as a product of coordinated selections at the level of inter-subjective

interactions. It is, in other words, the result of a social process, by which a unique

domain of possibilities is singled-out collectively, and provides a background for

further selections. The emergence of communication (or societal meaning) thus

comes, necessarily, at the expense of some other potential distinctions (or selections)

which were successfully excluded. Any observer – whether a human being or a

social system – by founding his or her observation on this distinction rather than any

other, would fail to see what this distinction excludes. Only a second observer can

view this failure – but he or she, also, would be subject to the limits of his or her own

point of view. See N. Luhmann, ‘‘‘What is the Case’’ and ‘‘What Lies Behind It?’’

the Two Sociologies and the Theory of Society’ (1994) 12 Sociological Theory 126,

137. Note, however, that this closure is not all ‘bad’. It also enables the system to

act. Thus, changing too much can also be risky – it could undermine the capacity of

the system to react to external perturbations.

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I. THE POLITICS OF ECOLOGICAL CO-EXISTENCE

Construction activities constitute a highly visible ecological threat.

Environmentalists tend to view this industry, primarily, as a source of

ecological disturbance and disfigurement. Indeed, over the last years

construction practice has been portrayed, increasingly, as an ecological culprit.

This process of ‘demonization’ is at odds with the positive role that

construction practice has played during human history – in providing basic

human needs, such as safe dwelling and a tamed environment. The sharp

contrast between these two articulations constitutes a difficult dilemma. In

developing a legal response to this dilemma I want to contrast between two

different environmental world-views, Both have emerged as a counter-response

to the capitalist vision of ‘nature-as-a-resource’. The first has been mostly

associated with the ‘deep-ecology’ movement, which interprets the idea of

‘environmentalism’ as a new form of ethic, which ‘gives to nature a social role

beyond being a means for human well-being’.

This alternative, non-

anthropocentric ethic sees the motif of ‘domination of nature’ as the main

malady of modern society, leading to two possible resolutions of the nature/

society opposition. The first seeks to replace the hierarchical approach to

nature, which is characteristic of contemporary society, with an ideology of

strict bio-egalitarianism. The second seeks to conflate the nature/society

distinction, and to replace it by a holistic vision, in which the boundaries

between humanity and nature are completely dissolved.

The practical implications of these interpretations remain unclear. Strict bio-

egalitarianism can only lead to social paralysis. If both humans and nature are

sanctified, how are we supposed to mediate between them if a conflict arises?

The holistic vision is no less problematic. If humanity and nature are conflated

into a unitary (non-hierarchical) whole, which becomes the primary object of

moral deliberation, how should we understand its various components and

envision their intricate relations (for example, in the context of a construction-

induced conflict?). It seems that the only way in which these interpretations

could be implemented in practice is through a strategy of strict ‘social

asceticism’, which would call for a complete withdrawal from the industrial

system and a return to a pre-capitalist society.

Only by adopting this vision of

stern ‘minimalism’ could the idea of nature as the embodiment of non-

instrumental moral value be given full effect

Bruno Latour’s environmental philosophy evolved as a counter-thesis to

the ideas of deep ecology. It offers, I believe, a more reasonable framework

for thinking about the construction-environment dilemma. Instead of calling

for bio-spherical egalitarianism or for the sanctification of nature, Latour

8 K. Eder, The Social Construction of Nature: A Sociology of Ecological

Enlightenment (1996) 207. See, further, A. Naess, ‘The Shallow and the Deep,

Long-Range Ecology Movement: A Summary’ (1983) 16 Inquiry 95.

9 See D. Forman, ‘Putting the Earth First’ in Debating the Earth: The Environmental

Politics Reader, eds. J.S. Dryzek and D. Schlosberg (1998) 358.

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argues that ecological dilemmas should be conceptualized as political

dilemmas. This political vision is based on a radical shift in the way in which

ecological dilemmas are observed; a shift from essences to relations. Latour

is not interested in investigating the essence of things, in attributing a-priori

labels to either humans or non-humans. His interest lies elsewhere: in

developing rich articulations of the intricate ways in which humans and non-

humans commingle and interact, and of the ways in which this commingling

transforms thern both (in terms of preferences, properties, and so on).

Construction activity is a rich source of such commingling: it provides the

setting for a very ‘tight’ or ‘intimate’ (in terms of space and time)

commingling between humans, eco-systems, and technologies.

But the move from essences to associations does not change just the way

in which nature-society dilemmas are observed.

It also reformulates their

resolution path – from the ethical to the political. To understand this change,

Latour argues, ‘one has to abandon the false conceit that ecology has

anything to do with nature as such’. Rather, political ecology needs to be

seen as ‘a new way to handle all the objects of human and non-human

collective life’; it is ‘a collective experimentation on the possible

associations between things and people without any of these entities being

used, from now on, as a simple means by the others’.

By designating this

new ‘collective’, Latour seeks to reformulate our understanding of politics

and polity. He thus challenges not just the deep ecologists’ dance between

sanctification and equality, but also the traditional conceptions of politics

and democracy, which have constructed these notions as exclusively human

constructs.

Conceptualizing ecology as a political endeavour means – in contrast to

the visions of bio-spherical egalitarianism or human domination of nature –

that the rights of both humans and non-humans cannot be decided a priori.

Rather, these rights can only emerge and be negotiated through a revised –

‘ecologized’ – political process. The main challenge lies, of course, in

developing practical institutional structures in which this new ‘ecologized’

10 You could feel, act, and be considered as a bourgeois, ecologically indifferent citizen

for a long period but then the risk of a bulldozer transgressing on your neighborhood

could turn you into a ‘green warrior’ or a green voter. And similarly, the bulldozer –

once a ‘neutral’ technical artifact – could be transformed into an anti-nature token.

See B. Latour, Pandora’s Hope: Essays on the Reality of Science Studies (1999)

174–215.

11 This move does not mean that we have to abandon all our prior distinctions. One

such basic distinction is between communicating beings, non-communicating

beings, and societies (networks of communications). See N. Luhmann, Ecological

Communication (1989). However, the political shift proposed by Latour provides

one possible (and in no sense privileged) standpoint from which the relations

between these distinct realms could be conceptualized.

12 See B. Latour, ‘To Modernize or to Ecologize? That is the Question’ in Remaking

Reality: Nature at the Millennium, eds. N. Castree and B. Willems-Braun (1996)

221, 234.

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polity could be realized.

It is on this point that the law and legal scholars

can make their most substantial contribution. Devising regulatory structures

is, after all, what the law has been doing from the moment it emerged into

the social plane.

From this perspective, the solution to the construction-environment

dilemma lies in the political domain. My critique of the lex constructionis

follows this line of thought in that it does not attempt to proceed,

deductively, from some universal solution to the trade and environment

conflict. Rather, I explore the cultural and institutional features of this body

of law, and examine how it could be transformed in order to facilitate a more

inclusive ‘ecological dialogue’ which will give nature a more ‘proper’ voice

vis-a

`-vis its human associates.

II. THE FEATURES OF THE LEX CONSTRUCTIONIS AS AN

AUTONOMOUS LEGAL SYSTEM

1. The basic structure of the international construction market

The international activity in the construction market takes place in a limited

segment of the global construction market – that which involves large-scale

projects (such as airports, harbours, sanitary schemes, mines, petrochemical

plants, and so on).

The international market for construction services has

expanded substantially over the last decade;

supported by the conclusion,

in 1995, of the WTO Agreement.

Construction projects are a multi-party

operation. As such, they generate a complex web of contracts.

international projects, the principal parties are generally the host nation’s

government, the project sponsors, lenders, contractors, operators, and

insurers. The contractual framework can vary substantially between different

13 Latour, op. cit., n. 10, p. 214.

14 For a more detailed discussion see the WTO report ‘Construction and Related

Engineering Services: Background Note by the Secretariat’ (1998).

15 id., para. 12. The size of this market is huge. In most industrialized economies the

share of construction in total GDP is between 5 and 7 per cent (id., para. 7).

Construction services are traded, primarily, through the establishment of commercial

presence at the site of the works, either by local subsidiaries or through joint

ventures between foreign and domestic firms. A good proxy for the scale of the trade

in construction services is the total revenues of the top 225 international contractors.

According to the WTO, total revenues have grown between 1994 and 1996 from

$62,219.4 millions to $126,777.2 millions, a 104 per cent increase (id., table 1, p. 9).

This economic expansion is likely to yield a parallel expansion in the legal universe

that supports the global trade in construction services.

16 Particularly important in this context are the new General Agreement on Trade in

Services (‘GATS’), and the Plurilateral Agreement on Government Procurement

(Annex 4 to the WTO Agreement), both signed at Marrakesh on 15 April 1994.

17 For a more detailed description of this complex contractual framework, see G.D.

Vinter, Project Finance (1998).

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project types, However, most construction projects include the following

three basic types of contracts: a construction agreement, in which the project

company and the contractor agree on the terms of the project; funding

agreements between the project company and the lenders; and insurance

contracts. Where the construction project concerns either an infrastructure

service (public utility) or the extraction of natural resources, the contractual

framework might include, in addition, a concession agreement in which the

host government grants the project company a long-term right to engage in

the relevant industry, and an operation agreement, which sets the conditions

for the operation of the service.

Of this complex contractual web, international construction law deals,

principally, with the construction agreement. In that respect, the lex

constructionis does not represent the whole legal complexity of the

construction endeavour. However, from an environmental perspective, the

construction agreement is probably the most interesting element of this

contractual web, as this is the ‘legal space’ which deals directly with the

ecological-physical aspects of the project. Any attempt to influence the

environmental impact of a construction project should focus, therefore, on

the structure and content of the construction agreement.

2. The emergence of the lex constructionis: basic communicative patterns

The lex constructionis is a product of standardized contracts, technical

guidelines, and arbitration awards.

Standard contractual forms constitute,

however, the most important element in this discursive universe: they form

the principal communicative channel through which the lex constructionis

evolves, and maintains its reflexivity.

While even the most popular forms

are rarely used unamended,

they have a profound effect on the formation of

normative expectations in this market. They underpin the negotiation

process, and accompany the construction process from beginning to end. The

common usage of standard contracts generates substantial economic

advantages, which seem to ensure the durability of this practice. It has

18 A common type of operation agreement is an output purchase agreement which

commits the host country, over a specified period, to purchase a minimum quantity

of the project’s output at an agreed price.

19 See B.J. Tieder, ‘The Globalization of Construction – Evolving Standards of

Construction Law’ (1998) 15 International Construction Law Rev. 550, and

Molineaux, op. cit., n. 3.

See J. Sweet, ‘The American Institute of Architects: Dominant Actor in the

Construction Documents Market’ (1991) Wisconsin Law Rev. 317, and Tieder, id., p.

552. There are significant linkages and cross-dependencies between domestic-oriented

forms and internationally-oriented standard contracts, see, for example, H. Lloyd,

‘Prevalent Philosophies of Risk Allocation – An Overview’ (1996) 13 International

Construction Law 502. For reasons of space I do not consider these interlinkages here.

21 See W. Hughes and D. Greenwood, ‘The Standardisation of Contracts For

Construction’ (1996) 13 International Construction Law 196, 204.

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reduced the transaction costs of entering into an international project and has

contributed to the evolvement of tendering as a conventional method of

obtaining competing quotations.

Public international law (both customary

and treaty law) has played, in contrast, a very limited role in the development

of the lex constructionis.

Standard model forms constitute, then, the main channel through which

the lex constructions transforms itself. There are, however, several other

important communicative channels. Of these the most important is

international arbitration. Most of the transactions in the international

construction market are subject to arbitration agreements. This means that

the majority of construction-disputes are being adjudicated before private

arbitrators, usually in one of the main international arbitration centres.

However, the capacity of the arbitration channel to instigate legal change is

limited, due to several features of the international arbitration field: the lack

of precedential practice, the absence of institutional cohesion (which

prevents the evolvement of organizational custom), and the lack of a wide

and timely circulation of judgments.

The increasing dominance of the

International Chamber of Commerce (ICC) International Court of

Arbitration might rectify, in the future, this lack of organizational cohesion,

and could thus increase the role played by the arbitration channel in the

evolution of the law.

The work of scholars constitutes another important

communicative channel. Scholarly publications are a particularly important

source of internal observation for the lex constructionis because, unlike

By ensuring a common basis for the evaluation of tenders, see N. G. Bunni, The FIDIC

Form of Contract: The Fourth Edition of the Red Book (1991) 3. The WTO

Agreement on Government Procurement, which is based on the idea of equal access to

governmental contracts, has also contributed to the expansion of the tendering method.

23 The intervention of public international law in the construction market was generally

limited to projects with transboundary effects. For a general discussion, see R.

Lefeber, Transboundary Environmental Interference and the Origin of State

Liability (1996) 19–46.

See Lloyd, op. cit., n. 20, p. 509. National courts, particularly in England and Wales, are

another source of interpretation. Arbitration awards frequently refer to decisions of

national courts, see the extracts of ICC arbitral awards on construction contracts, which

appeared in the ICC International Court of Arbitration Bulletin, vols. 2(1), 9(1), and 9(2).

25 Whereas new electronic forms of storing legal data, such as Lexis and Westlaw, have

changed significantly the pattern of communication in other legal spheres

(particularly in the United States of America), in the arbitration world, awards are

still available only in a printed form, with poor devices for sorting and ordering, and

even that only after a substantial delay. As was noted above, the ICC has made some

effort to rectify this problem by publishing extracts from ICC arbitral awards.

26 The prominence of the ICC arbitration centre seems to be guaranteed by the

common stipulation in FIDIC’s contracts that a contractual dispute should be

submitted to ICC arbitration if it can not be resolved in a less contentious way: see

C. Wade, ‘FIDIC’s Standard Forms of Contract – Principles and Scope of the Four

New Books’ (2000) 17 International Construction Law Rev. 5, 9. Other arbitration

centres, such as the London Court of International Arbitration, have failed, so far, to

establish themselves as prominent players in the construction arbitration market.

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arbitration awards which tend to provide an extremely scattered and episodic

portrait of the law, the work of scholars provides a comprehensive and

updated observation of the law – particularly of new standard forms.

Unlike domestic legal systems, in which legal change is effectuated

through two different processes – legislation and judicial decisions – the lex

constructionis changes principally through the channel of standard con-

tractual forms. Its reflexivity structure is thus much more limited than that of

domestic legal systems. This observation leads to two related predictions.

First, that the lex constructionis would be much more influenced by its

history: legal practices might persist even when the historical conditions in

which they were formed cease to be relevant. Because of its limited

reflexivity, we might reasonably expect such persistence to be more per-

vasive within the lex constructionis than in a domestic system of law.

Second, the evolutionary path of the lex constructionis should be much more

sensitive to the institutional nature and structure of the organizations which

control the production of standard forms.

I will revisit these predictions in

the course of the discussion of the openness of the lex constructionis to

environmental considerations (section III below). The following section

examines the institutional structure of the lex constructionis.

3. The institutional setting of the lex constructionis: exclusion and dominance

The international market for standard construction contracts is dominated by

a small group of international organizations.

This private control of the

norm-production process stands in contrast to the WTO realm in which the

norm-production process is divided between a contractual, inter-state realm,

and an independent judicial system. The main players are the International

Federation of Consulting Engineers (FIDIC),

the International European

Construction Federation (FIEC), the British Institution of Civil Engineers

(ICE), the Engineering Advancement Association of Japan (ENAA), the

American Institute of Architects (AIA),

and the International Bank for

27 See, for example, the commentaries on FIDIC’s Red Book by E.C. Corbett, FIDIC

4th – A Practical Legal Guide: A Commentary on the International Construction

Contract (1991), and Bunni, op. cit., n. 22. Forums like the International

Construction Law Review fulfil a similar role. The capacity of scholarly publications

to effectuate legal change remains, however, quite limited.

28 Neither of these predictions should lead, a priori, to a conclusion that the lex

constructionis is inefficient or ecologically indifferent. One cannot rule out the

possibility that a legal system will develop very sensitive private-legislative

mechanisms that will compensate for the absence of judicial innovations.

29 For a recent survey of these organizations, see Tieder, op. cit., n. 19, pp. 554–79.

30 The acronym stands for the French title: the Federation Internationale des

Ingenieurs – Conseils.

31 Although AIA model forms are not meant to be used in international projects, their

widespread use in the United States market (Sweet, op. cit., n. 20) has turned them

into a significant transnational benchmark.

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Reconstruction and Development (the World Bank).

Other key

contributors are UNCITRAL and UNIDROIT, through their more general

work on universal contract models.

UNCITRAL was involved also in

specific work on the construction market.

International legal firms are

another important player.

I would like to focus, however, on one prominent player in this group –

the International Federation of Consulting Engineers.

This does not imply

that the other players are not important, but FIDIC enjoys a dominant

position which justifies, I believe, this special attention. The discussion that

follows examines closely the structure of FIDIC’s contractual products, and

the institutional framework that facilitates the norm-production process.

will nonetheless make comparative references to the contractual products of

two other organizations: ENAA and the ICE.

FIDIC was founded in Belgium in 1913.

It is an association of national

32 The World Bank’s operational directives have a large influence on the operations of

other public lending bodies such as the Asian Development Bank, see Tieder, op.

cit., n. 19, p. 555. To some extent the World Bank also influences the lending

practices of private financial institutions.

33 See Tieder, id., pp. 558–72. In that context, the publication, in 1994, of UNIDROIT’s

Principles of International Commercial Contracts was particularly important.

UNIDROIT’s principles set themselves with the ambitious task of creating a model

contract law for cross-border transactions, see K.P. Berger, ‘The Lex Mercatoria

Doctrine and the UNIDROIT Principles of International Commercial Contracts’

(1997) 28 Law and Policy in Internalional Business 943. UNCITRAL’s most

important contribution was the adoption, in 1993, of the Model Law on Procurement

of Goods, Construction and Services. This model law deals, however, only with pre-

contractual selection practices, and does not address contract performance issues or

the settlement of disputes (Tieder, id., pp. 561–2).

34 In 1988 UNCITRAL published its ‘Legal Guide on Drawing Up International

Contracts for the Construction of Industrial Works’ (1988) which was quite widely

used, especially by developing countries. Another and more recent contribution is a

‘Legislative Guide on Privately Financed Infrastructure Projects’ (2001).

35 See Y. Dezalay and B. Garth, ‘Merchants of Law as Moral Entrepreneurs:

Constructing International Justice from the Competition for Transnational Business

Disputes’ (1995) 29 Law and Society Rev. 27.

36 For the central role of FIDIC in the construction market see ICC, ‘Extracts of ICC

Arbitral Awards on Construction Contracts Referring to the F.I.D.I.C. Conditions’

(1991) 2 ICC International Court of Arbitration Bull. 15. The ICC notes in the

introduction to this collection that: ‘In recent years construction disputes have

represented some 21 per cent of cases submitted annually to ICC arbitration. A

significant portion of these construction cases is governed by the F.I.D.I.C. .. .

Contract (International) for Works of Civil Engineering Construction or on

conditions modeled on the F.I.D.I.C. Conditions’ (id., p. 15).

This aspect of FIDIC’s work has received little attention in the legal literature. Most of

the literature consists of legal analysis of FIDIC and other international standard forms.

38 The following description is based on a paper by John Bowcock who was the

chairman of FIDIC’s Contracts Committee at the time: J. Bowcock, ‘The Four New

FIDIC Forms of Contract – Introduction’ (FIDIC New Contracts Launch Seminar

Series, September – December 1998), available at .

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member associations; thus, it does not include as members individual firms

of consulting engineers. The original founding countries were France,

Belgium, and Switzerland. FIDIC’s current membership circle transcends the

limited European membership of its inception period. By September 2001

FIDIC’s membership encompassed si xty-seven national member

associations representing some 560,000 professionals.

FIDIC is governed

by an executive committee and several specific committees and task

groups.

FIDIC has dominated the market for international construction documents

since the 1960s, with its standard forms of contract for engineering

construction and for the provision of mechanical and electrical plant. The

first form, ‘Conditions of Contract for Works of Civil Engineering

Construction’, which came to be known as the ‘Red Book’, was used

mainly for large projects, such as infrastructure and hydropower. The second

form, ‘Conditions of Contract for Electrical and Mechanical Works

including Erection on Site’ (also called the ‘Yellow Book’) – was used

mainly for the construction of industrial sites. Both forms have been in

widespread use for several decades.

FIDIC’s Red Book was particularly

dominant in the world market.

The prominent status of the Red Book was

affirmed by the World Bank, which has incorporated it into its standard

bidding documents for procurement of works.

Other private associations,

such as the British Institution of Civil Engineers and ENAA of Japan, have

39 The information was drawn from FIDIC’s website,

default.asp>, visited on 26 September 2001.

40 These include an Assessment Panel for Adjudicators, Business Practices Committee,

Contracts Committee, Capacity Building Task Force, Integrity Management Task

Force, Quality Management Task Force, Sustainable Development Task Force, and a

Risk Management Forum. The data were drawn from FIDIC’s website,

, visited 26 September 2001.

41 The Red Book was first published in 1957 and its fourth (and last) edition was

published in 1987. The Yellow Book’s third edition was published in 1987.

For a comprehensive commentary on the Red Book, see Corbett, op. cit., n. 27,

and Bunni, op. cit., n. 22. The Red Book has been amended several times since

1987. In 1999 FIDIC published a new series of contracts, which replaced the

Red Book. The detailed discussion below is based on FIDIC new contractual

products which, as will be explained below, are quite different from their

predecessors.

43 See the World Bank Standard Bidding Documents for Procurement of Works

(‘SBDW’) May 2000, electronic version available at

opr/procure/workspage.html>, visited 25 September 2001). The SBDW are based on

the fourth edition of the Red Book (1987, reprinted 1992 with amendments) and thus

do not reflect, as yet, FIDIC’s most recent forms. See, also, Molineaux, op. cit., n. 3,

p. 59. Additional indication of the normative status of FIDIC’s model forms can be

found in the recent decision of the World Bank to base its new trial edition (2000) of

Bidding Documents for Procurement of Simple Works (of Small Value, Short

Duration and Low Risk) on FIDIC’s ‘Short Form of Contract’ (1999). A copy of this

sample document is available on the World Bank website, id.

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also produced important standard documents;

however, none of these

documents has received the same kind of international stature that was

achieved by FIDIC documents, in particular by the Red Book.

The process through which FIDIC has produced its most recent

contractual products provides a good illustration to the institutional bounds

of the lex constructionis (or, in other words, to the openness of the norm-

production process). These bounds tend to perpetuate the ecological

insensitivity, discussed in the following section. In 1994 FIDIC decided to

update the Red and Yellow Books, by initiating a long and varied

consultation process.

This consultation process was mainly restricted,

however, to FIDIC’s natural audience: its members and other relevant groups

such as law firms, contracting groups, and financing institutions.

The

consultation process did not extend beyond the limited circle of the potential

users of FIDIC’s forms. FIDIC has not consulted other groups, such as

environ-mental and labour groups, despite the fact that international

construction projects can have a large influence on the life of the people

that these groups represent.

The institutional process behind the production of FIDIC’s new contracts,

reveals, therefore, a clear pattern of exclusion: the contracts were formulated

in the closed organizational sphere of the construction industry (including

related affiliates like financial institutions).

Groups which were not part of

this closed circle were left out. The exclusion of other voices, such as those

of environmental groups, provides one explanation for the environmental

insensitivity of FIDIC contracts, which will be considered in more detail in

section III below. However, it would be wrong, I believe, to explain this

insensitivity simply in terms of cartelistic behaviour.

The cultural

orientation of FIDIC cannot be reduced to the business interests of its

members. This non-economic background (to which I shall return in section

IV below) indicates that the organizational closure, which was sketched

above, could be altered.

44 See Tieder, op. cit., n. 19, pp. 576–9.

45 See, Wade, op. cit., n. 26.

46 id., p. 7.

47 The drafting process within other professional associations seems to follow a similar

pattern of exclusion. See, for example, the discussion of the American Institute of

Architects model contracts in T.L Stipanowich, ‘Reconstructing Construction Law:

Reality and Reform in a Transactional System’ (1998) Wisconsin Law Rev. 463, 526.

48 For this type of argument in the context of standardization, see G. Spindler, ‘Market

Processes, Standardisation, and Tort Law’ (1998) 4 European Law J. 316.

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III. ENVIRONMENTAL CLOSURE AND STANDARD

CONSTRUCTION CONTRACTS

1. FIDIC’s model forms: a general exposition

This section seeks to expose and criticize the environmental record of the lex

constructionis. Whereas the domestic scene, particularly in the United States

of America and Europe, has experienced a burgeoning wave of legal

innovations, covering different aspects of the environmental problematic –

from corporate liability (moving from traditional notions of individual

liability to new forms of collective liability), pollution control (using market

mechanisms rather than strict emission standards), to new regulatory tools

(such as broad disclosure requirements and eco-labelling),

the lex

constructionis has shown little ‘environmental’ innovation. It has maintained

in general an attitude of indifference toward environmental problems. This

section seeks to explore the nature of this indifference through a close

examination of some of the model forms that dominate the global

construction market, in particular the new series of contracts which was

published by FIDIC in 1999. I will try to assess to what extent these model

forms incorporate and give voice to general environmental concerns.

Two

other model forms, ENAA’s Model Form of International Contract for

Process Plant Construction (ENAA Model Form) and the ICE New

Engineering Contract (NEC) will be used as an additional comparative

source. I have chosen these two model contracts as a second point of

reference, because, although they do not enjoy the same universal stature as

FIDIC’s contracts, they are also used commonly in international projects.

49 See, for example, G. Teubner, ‘The Invisible Cupola: From Causal to Collective

Liability’ in Environmental Law and Ecological Responsibility , eds. G. Teubner, L.

Farmer and D. Murphy (1994) 17–48, discussing new doctrines of collective

liability, and Tietenberg and Wheeler, op. cit., n. 6, pointing to information

strategies as a new form of environmental regulation.

50 The analysis of FIDIC’s new forms does not intend to provide a comprehensive

analysis of their provisions. For a more general analysis, see, for example, P.L.

Booen, ‘The Three Major New FIDIC Books’ (2000) 17 International Construction

Law Rev. 24, and Wade, op. cit., n. 26.

51 As was noted before, one indication of the international status of FIDIC’s Red Book

was its adoption by the World Bank. The ENAA’s Model Form of International

Contract for Process Plant Construction was also adopted by the World Bank, and is

used in its ‘Standard Bidding Documents for Supply and Installation of Plant and

Equipment’ (November 1997, revised January 1999), electronic version available at

. For a commentary on

ENAA’s Model Form, see T. Wiwen-Nilsson, ‘The 1996 Edition of the ENAA

Model Form – International Contract for Power Plant Construction – A Brief

Review’ (1997) 14 International Construction Law Rev. 273. ICE’s NEC series,

which was first published in 1993 (a second edition was published in 1995), has also

significant international profile: see M. Barnes, ‘The New Engineering Contract –

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Before proceeding to review the environmental aspects of FIDIC’s new

contracts it might be worthwhile to consider the general structure of the three

model forms, which constitute the core of FIDIC’s new contracts-series.

FIDIC’s new line of contracts

reflects a change of thought in FIDIC. The

new contracts focus more on the apportionment of responsibilities between

the parties, than on the project’s type. Thus, the emphasis was shifted from

‘civil’ versus ‘electrical and mechanical’ works to ‘works being designed by

the Employer’ versus ‘works being designed by the Contractor’.

Accordingly, the special task-group established for this purpose decided to

develop a new construction book to be used for building/civil/ engineering

works designed by the employer or by his representative, the engineer

(henceforth, the Construction Contract). Conversely the new Plant &

Design-Build Book was designed to be suitable for plant/building/

engineering works designed by (or on behalf of) the contractor (henceforth,

the Plant Contract).

In addition, FIDIC issued a completely new model

form, based on a two-party approach, entitled the EPC Contract.

Both the new construction contract and the plant contract kept the

traditional three-party structure, which was used in the contracts’ previous

editions. Within this framework, the engineer, whom the employer (the

procurer of the works) employs for this purpose, administers the contract,

monitors the construction work, and certifies payments. Whenever the

engineer is required to determine any contentious matter or settle any claim

for time extension or extra costs, he or she is first required to consult with

each of the parties in an endeavour to reach agreement. If agreement is not

achieved, the engineer is required to make a fair determination in accord-

ance with the contract. If the engineer’s determination is not agreed by

either of the parties, or if a dispute otherwise arises, the parties can forward

An Update’ (1996) 13 International Construction Law Rev. 89, 95. The NEC series

comprises six different options, which all share the same core clauses. I will use the

NEC option F: Management Contract (November 1995) as my reference document.

52 The contracts were published initially in 1998 in a test edition. All my comments

refer to the 1999 edition of the contracts.

53 See Wade, op. cit., n. 26, p. 8. In the construction jargon the term ‘employer’ refers

to the entity which initiated the project. In many cases this would be a governmental

body of some sort; the term ‘contractor’ refers to the entity which would be

responsible for the actual execution of the project.

54 These three short titles are used in FIDIC publications, the full names being:

‘Conditions of Contract for Construction (for Building and Engineering Works

(for Electrical and Mechanical Plant, and for Building and Engineering Works,

Projects’ (EPC stands for engineering, procurement, construction). See FIDIC, ‘New

Documents Ready For Edmonton’ (1998) 1998/2 FIDIC Q. Report 2. A fourth form,

which was also published in 1999 – Short Form of Contract – deals mainly with

small-value and simple projects. It is thus less relevant to the international market,

and will not be referred to in the following.

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the dispute to a dispute adjudication board (DAB).

If either party does not

accept the DAB’s decision and the parties fail to reach an amicable

settlement, the matter must be finally settled by international arbitration,

usually under the ICC Rules.

During the work on updating the Red and Yellow Books it became

apparent to the special task group that there is a demand in the market for a

contract that takes a two-party approach, where the engineer plays a less

prominent role in the administration of the contract resulting in the EPC

contract.

This demand was a reflection of the increase in the number of

privately financed international projects.

The move toward private forms

of financing triggered the development of several new models of project

delivery. These include the Build-Operate-Transfer (BOT) model, and the

Build-Own-Operate (BOO) model. In these concession-type arrangements a

private company

(the concessionaire) is granted the right and obligation to

provide an infrastructure service, usually by the state or a municipality.

The service, whether gas, power, water, transport, sanitation, or

telecommunications, is provided under terms and conditions specified in a

contract or licence. The concessionaire takes over operational responsibility

and at least part of the commercial risk of service provision.

By granting

the concession the state eliminates the need to pay for the construction

services once the work is completed.

ln such projects, the concessionaire takes most of the responsibility for the

financing, construction, and operation of the project. The uncertainty

associated with BOO or BOT projects includes, in addition to the ‘normal’

risks associated with the construction process, also the risks associated with

the project’s future cash flow. In order to limit their risk exposure, the

lenders seek to limit the uncertainties associated with the contract, both by

55 The DAB comprises one or three persons, which should be jointly appointed by the

parties, either at the commencement of the contract or on an ad hoc basis. The

concept of DAB was imposed on FIDIC by the World Bank, which was not happy

with the original Red Book framework, which appointed the engineer – despite

being paid by the employer – as the internal disputes-adjudicator of the contract. The

DAB concept is discussed in more detail below.

56 See, Wade, op. cit., n. 26, pp. 8–9.

57 id., p. 9.

58 id., p. 10, and World Bank ‘Privatization and Environmental Assessment: Issues and

Approaches’ in Environmental Assessment Sourcebook Update No. 6. (1994).

59 The construction company and the operator of the infrastructure service may be

different entities.

60 I am interested here mainly in those concession arrangements, which include both a

‘service’ element (the operation and maintenance of the facilities and the supply of

the infrastructure service) and a ‘construction’ element (the design and construction

of the new infrastructure). However, some concession arrangements may include

only a service element.

61 See P Guilaim and M. Kerf, ‘Concessions – The Way to Privatize Infrastructure

Sector Monopolies’ World Bank Public Policy for the Private Sector Series, October

1995, 4 at .

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eliminating the ‘engineer’ as an independent contractual persona with semi-

arbitral powers, and by placing the majority of risks associated with the

construction of the facility (for example, market and technical risks) on the

construction contractor.

The EPC Contract reflects the special

requirements of privately financed models by placing the total responsibility

for the design and construction of the infrastructure or other facility on the

contractor, and providing a higher degree of certainty that agreed contract

price and time will not be exceeded.

2. Environmental concerns and FIDIC model contracts

The way in which FIDIC (and other) contracts deal with environmental

issues reflects a commitment to a strict public/private dichotomy, and their

understanding of environmental responsibility is very much a product of this

dichotomy. In analysing the contractual treatment of environmental

problems I will use the concept of environmental impact assessment (EIA)

as my focal point. EIA constitutes today the preferred regulatory response to

the construction-environment dilemma, aiming to provide a comprehensive

framework in which the ecological impacts (including long-term effects) of

construction activities can be assessed and dealt with. The EIA doctrine is

based on the idea of ex-ante assessment – on the adoption of a forward-

looking approach, which seeks to examine the environmental impacts of a

project at an early stage. Because the EIA process is conducted before the

commencement of the construction project – with all the financial

commitments that come with it – it opens the way for an early detection

of ‘environmental’ mistakes (for example, problems of location, or basic

design flaws). EIA enables, therefore, the prevention of nonreversible

actions and costly financial commitments. EIA also provides a mechanism

for blocking those construction activities, which are completely untenable

from an environmental perspective. The extent to which FIDIC’s new

contracts incorporate the concept of ‘environmental impact assessment’ can

provide, therefore, a good indication of their ecological ‘sensitivity’.

Before turning to the detailed assessment of FIDIC forms, it is important to

make more explicit the ecological challenge that is faced by the lex

constructionis (this would help us to assess the environmental ‘failings’ of

this legal system). The scope of this challenge is determined by the sequential

fashion in which the construction process is observed by the law. The standard

construction contract (FIDIC’s or any other) does not normally govern the

contractual phase in which the EIA process takes place. The construction

contract regulates the ‘main phase’ of the construction project, the detailed

design and execution. In contrast, the EIA process is usually part of a ‘pre-

contract’ evaluation process, in which the procurer of the works assesses the

feasibility of the development plan and considers possible alternatives. This

62 See Wade, op. cit., n. 26, p. 11.

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assessment process comprises, usually, in addition to the EIA element, other

studies which examine, for example, the financial feasibility of the project, and

its compatibility with local land-use requirements.

This stage is governed by

a separate set of consultancy contracts, and by extra-contractual legal

requirements.

The construction contract holds, then, a posterior position in

this contractual sequence.

The legal separation between the different phases of the construction

project creates two difficulties. The first concerns the issue of implementa-

tion and monitoring. the second has to do with unforeseen contingencies.

The first problem points to the need for a contractual mechanism, which

could ensure that the conclusions of the EIA are actually implemented.

Proper monitoring procedures should form an essential element of any such

mechanism. The importance of follow-up mechanisms stems from the fact

that both the regulatory authority and the developer may find it tempting to

use the EIA as a ‘pseudo-analysis’.

From the authority’s perspective, the

EIA process could be perceived solely as a pre-decision mechanism, which

culminates in the authority’s final decision to grant (or refuse) a develop-

ment consent, and as such has no post-decision (for example, monitoring)

implications. From the developers’ point of view, once the project is granted

a formal consent, they have little interest in developing and implementing a

monitoring and post-auditing programme, which would enable them to

implement the EIA conclusions (and provide the authority with a convenient

supervising mechanism). The EIA literature points, indeed, to that lack of

proper post-EIA monitoring as one of the key problems in the current EIA

practice, both in the developing and developed world.

The issue of unforeseen contingencies points to a different problem,

which stems from the (unwarranted) tendency to treat the conclusions of the

EIA process as a closed and final set of prescriptions. This perception

ignores the fact that the EIA process, which is conducted before the

commencement of the project, cannot provide a complete description of the

63 See, for example, UNCITRAL (1988), op. cit., n. 34, pp. 9–13.

64 The separation between these two phases is further exacerbated by the fact that in

most cases the preliminary studies will not be conducted by the contractor that

would be engaged to construct the works, but by another firm (mainly because of the

risk of conflict of interests). In complex projects this principle could, however, be

compromised (id., p. 12).

65 ‘Pseudo-EIAs’ indicates those EIAs which are carried out with the single objective

of getting the project cleared. irrespective of the true environmental costs. See A.K.

Biswas, ‘Summary and Recommendations’ in Environmental Impact Assessment for

Developing Countries, eds. A.K. Biswas and S.B.C. Agarwal (1992) 240–1.

For a discussion of the problem of compliance monitoring in the context of the

developing world see id.; and see, also, for example, B. Dipper et al., ‘Monitoring and

Post-auditing in Environmental Impact Assessment: A Review’ (1998) 41 J. of

Environmental Planning and Management 731, 735 (discussing the EU), and L. Canter

and R. Clark, ‘NEPA Effectiveness – a Survey of Academics’ (1997) 17 Environmental

Impact Assessment Rev. 313, 323–4 (discussing the United States of America).

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project’s ecological impacts. Once the project unfolds there are bound to be

some environmental ‘surprises’. Coping with the problem of unforeseen

contingencies requires more than a mere implementing mechanism. It

requires the development of reflexivity procedures, which would encourage

the parties to reassess the environmental impacts of the project (even when

such impacts have no functional implications), and would provide the parties

with clear procedures through which the original design or work-programme

could be updated in response to such contingencies.

The discussion so far has pointed to two main legal challenges (both

related to the sequential nature of the construction process): post-EIA

monitoring and unforeseen contingencies. None of these problems is treated

by FIDIC contracts (or by the ENAA and NEC forms). For reasons of space I

will not enter here into a detailed description of the contracts.

I will only

make some brief references to the actual – and unsatisfactory way – in which

FIDIC contracts deal with the environmental issue. A direct reference to

environmental concerns can be found only in one clause, which is common

to the construction, plant, and EPC contracts. Article 4.18, which is titled

‘Protection of the Environtnent’, provides that:

The Contractor shall take all reasonable steps to protect the environment (both

on and off‘the Site) and to limit damage and nuisance to people and property

resulting from pollution, noise and other results of his operations.

The Contractor shall ensure that emissions, surface discharges and effluent

from the Contractor’s activities shall not exceed the values indicated in the

Employer’s Requirements, and shall not exceed the values prescribed by

applicable Laws.

While the inclusion of Article 4.18 in FIDIC’s new forms does reflect an

awareness of environmental issues, its limited coverage means that it cannot

provide an adequate response to many environmental concerns. The duty of

care imposed on the contractor by Article 4.18 is limited to the contractor’s

operations on and off the site; it does not cover the broader and long-term

ecological impacts of the construction project as a whole.

Moreover, this

provision makes no attempt to deal with the challenges of post-EIA

monitoring or unforeseen contingencies. The ENAA’s model form and the

Institution of Civil Engineers NEC do not include even such a limited

provision.

67 For a more detailed discussion, see O. Perez, ‘Ecological Sensitivity and Global

Legal Pluralism: Rethinking the Trade and Environment Debate’ (PhD thesis,

London School of Economics and Political Science, 2001) ch. 6.

68 Article 4.18 of the construction contract uses the term ‘specification’ instead of

‘employer’s requirement’.

69 Article 4.18 can be enforced, of course, only by the employer. The question is

whether the employer will bother to enforce this provision in those cases in which its

breach does not affect the successful completion of the project. I did not find

examples for such litigation with respect to FIDIC contracts (which does not

necessarily say that there were no such incidents).

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FIDIC’s new contracts do not include any other clear environmental

provisions, or, to that extent, any direct reference to a pre-contractual EIA

statement. This is also the case with respect to the NEC and ENAA’s model

form. The main other (indirect) route through which the ‘environmental’

issue enters into the contractual universe of the industry’s standard forms

concerns the contracts’ general compliance provisions, which require the

parties to comply with the applicable laws of the host country in the design

and execution phases of the project.

These would include, of course, any

environmental regulation, The underlying assumption behind these

provisions is that it is the responsibility of the ‘external’ law to regulate

the environmental aspects of the construction activity, including the EIA

process, and any post-EIA requirements. The compliance provisions

construct the ecological side-effects of the construction activity, as a ‘public

order’ dilemma – a dilemma that lies outside the contractual realm – and as

such should be regulated by the state which hosts the construction project.

3. Critique of the contemporary contractual response to the environment-

construction dilemma

The response of the lex constructionis to the construction-environmental

dilemma is, then, based primarily on a strategy of deference, which seeks to

externalize the responsibility for regulating the environmental aspects of the

construction activity to the ‘extra-contractual’ realm of the law of the host-

state. This is achieved through the employment of ‘compliance’ provisions,

which appear in most of the standard forms. The fundamental assumption

behind the deference model is that the contract is a private ordering device.

As such it cannot and should not interfere with the kind of issues that fall

under the ambit of the ‘public order’. Since environmental problems are seen

as part and parcel of this ‘public order’ they are envisaged as falling outside

the boundaries of the contractual regime. The contractual order has, under

this vision, no original role to play in the field of public order. Its only

contribution is to provide legally recognized addressees to which external

orders may be directed. The environmental closure of the lex constructionis

is a clear product of this private/public divide.

This sharp distinction between the private and public orders, which

characterizes the lex constructionis, has strong roots within the lex

mercatoria. The purpose of the lex mercatoria was understood, historically,

as protecting business expectations; the primary task of the lex mercatoria

was to render business relations more calculable.

The lex mercatoria was

70 See Articles 1.13, 2.2, of the construction contract, and Articles 1.13, 2.2, 5.4 of the

plant and EPC contracts. See, also, Articles 9.3, 9.4, 10.3, and 10.4 of the ENAA

model form, Articles 18.1, 31.2, 95.3 (health and safety requirements), and 19.1 and

21.2 (general compliance requirements) of the NEC.

71 See H. Collins, ‘Formalism and Efficiency: Designing European Commercial

Contract Law’ (2000) 1 European Rev. of Private Law 211, 216–17.

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seen, therefore, as having no interest in other forms of expectations. This

‘interest’ had to be imposed from the outside. The growing debate among

scholars and practitioners of international arbitration with respect to the

linkage between mandatory rules of law and the lex mercatoria is one

example of the influence of this legal conception.

The question underlying

this debate was to what extent mandatory rules of law, or issues of ‘public

policy’, should interfere with the ‘law of the contract’, This question has

usually arisen in proceedings for enforcement of foreign arbitral awards,

where the ‘public policy’ argument was invoked as a ground for refusing

enforcement. The question has become especially important in the field of

competition law, An increasing number of cases deal with the question

whether an international contract, which is seen as inconsistent with the

competition laws of the country in which it was made or was intended to be

executed, should be given effect.

While there are varying opinions with respect to how far mandatory rules

can interfere with the realm of the lex mercatoria, and how the content of

these rules should be determined,

the legal debate is, nonetheless, based on

the shared and uncontested assumption that the private realm of the lex

mercatoria can make no positive contribution to the realm of public order.

The debate has focused exclusively on the question whether public law can

(and should) encroach into the private order of the contract. The opposite

question has never been discussed.

As one ICC arbitrator has put it:

‘Agreements and contractual obligations may not be extended to the field of

public orders’.

72 The New York Convention on the Recognition and Enforcement of Foreign Arbitral

Awards recognizes the violation of public policy (or ordre public) as a ground for

refusing recognition/enforcement of foreign awards (see Article V.2). A similar

provision is included in UNCITRAL Model Law on International Commercial

Arbitration (1985), see Article 36.

73 The two leading cases are the US Supreme Court decision in Mitsubishi v. Soler 473

US 614 (1985), a case involving the applicability of the US Sherman Act to an

arbitration conducted under Swiss law, and the European Court of Justice decision in

Case C-126/97 Eco Swiss China Time Ltd. v. Benetton International NV [1999] ECR

1–3055, where the ECJ considered this question in light of the EU competition rules.

For a more detailed discussion of these cases, see A. Sheppard and N. Nassar, Final

Report on Public Policy as a Bar to Enforcement of Arbitral Awards (2000) 19–20,

and D. Hochstrasser, ‘Choice of Law and ‘‘Foreign’’ Mandatory Rules in

International Arbitration’ (1994) 11 J. of International Arbitration 57, 75–9.

74 For a detailed discussion of this debate see Sheppard and Nassar, id, and

Hochstrasser, id.

75 This question was discussed, however, in the domestic context, see, for example,

note, ‘Private Law Making by Trade Associations’ (1949) 62 Harvard Law Rev.

1346, 1367 and M.C. Dorf and C.F. Sabel, ‘Constitution of Democratic

Experimentalism’ (1998) 98 Columbia Law Rev. 267.

76 See S. Jarvin, ‘International Chamber of Commerce Court of Arbitration: Award

Rendered in Case No. 3902 in 1984’ (1984) 2 International Construction Law Rev.

49, 52 (which includes a report of the case).

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However, the translocation of the distinction between the contractual

and public orders from the lex mercatoria to the lex construcionis is highly

problematic from an environmental perspective. Indeed, it undermines the

capacity of the lex constructionis to ‘see’ the deep environmental

problematic of the construction practice. There are two aspects to this

legal ‘blindness’. The first is political; the second is functional. From a

political perspective, there is a problematic gap between the fragmented

legal image that is generated by the lex constructionis, and the actual

socio-environmental intimacy that characterizes the construction

endeavour. Construction activities, which encroach deeply into the social

and ecological localities in which they take place, are highly

contextualized activities; they are ‘webbed’ into their social and ecological

surroundings. This embeddedness is highly incongruent with the image of

an isolated ‘business relation’, which underscores the contractual tradition

of the lex mercatoria. The fragmented discourse of the lex constructionis is

‘blind’, in other words, to the community that is fabricated by the

interference of the construction endeavour in a particular geographical

space and a delimited time horizon.

This ‘blindness’ of the lex constructionis provides a convenient setting for

the externalization of the project’s environmental costs to the extra-

contractual community. In that respect the contractual tradition of the lex

mercatoria goes hand in hand with the economic constraints that surround

the construction market. Economists view the legal contract as a tool for

enhancing the economic value of the business deal for its parties. This

economic vision, as its legal counterpart, provides no basis for the

consideration of those interests, which are not parties to the ‘deal’.

The

notion of ‘efficient risk allocation’ further illustrates how this logic of

externalization operates. In order to maximize its economic value the

contract is expected to provide the parties with an efficient risk-allocation

scheme. This should be achieved by allocating particular risks to the party

best able to manage them.

Any other allocation would inhibit the

realization of a surplus-maximizing transaction. The economic vision clearly

encourages the parties to allocate environmental risks to the extra-

contractual community, when they can do it without any external

consequences.

77 Under this economic vision, a perfect, or complete contract is that which ‘fully

realize[s] the potential gains from trade in all states of the worlds’, see I. Ayres and

R. Gertner, ‘Strategic Contractual Inefficiency and the Optimal Choice of Legal

Rules’ (1992) 101 Yale Law J. 729, 730.

78 See L.W. Carter and G. Bond, Financing Private Infrastructure (1996) 67.

Indeed, the idea that ‘third parties’ might need protection from such

externalization is used to justify in the national context – the encroachment of

the ‘freedom of contract’ ideal by mandatory rules. A prominent example is

antitrust laws, which restrict the power of private parties to enter into exclusive

dealing agreements.

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But the private/public dichotomy, and the sharp apportionment of roles

that accompanies it within the contractual discourse of the lex constructionis,

is problematic also from a functional perspective. The assumption that the

extra-contractual realm can provide the regulatory services that are expected

from it under the deference model is highly questionable. The complexity of

the construction endeavour requires a cooperative regulatory strategy, which

would bring together the problem-solving capacities of the constructing

agents, the regulatory establishment, and the community that hosts the

project. Thus, for example, successful environmental assessment might

require the involvement of both local knowledge and highly technical

capabilities. Assessing the environmental and social impacts of a project is a

‘fuzzy’ and unbounded task. There is no clear candidate to whom this task

can be delegated on exclusive terms. The sharp distinction between the

internal and external orders inhibits the evolvement of such flexible, trans-

domain collaborations. The fact that the regulative capacities of many

developing countries are highly limited further emphasizes the need for such

collaborations.

It is important to note in this context, that the existing

international regulatory framework cannot, in its current form, fill the

regulatory void that characterizes the developing world.

4. A different contractual vision?

Any attempt to incorporate environmental concerns into the lex

constructionis would require, then, a change in the current conception of

the construction contract. I believe that viewing the construction contract as

a semi-political mechanism, rather than a strictly private tool, can provide a

useful basis for transforming the current environmental insensitivity of the

lex constructionis. This transformation should seek to break the traditional

80 Thus, for example, in many developing countries EIA is not required, and, even

when it is required, tends to be poorly implemented and monitored. See Biswas and

Agarwal, op. cit., n. 65, and the World Bank, op. cit., n. 58, p. 4. The EIA issue is, of

course, only one aspect of this institutional weakness. Similar regulatory problems

exist in the supervision of industrial pollution, see, for example, S. Pargal et al.,

‘Formal and Informal Regulation of Industrial Pollution: Comparative Evidence

from Indonesia and the United States’, World Bank Policy Research Working Paper

1797 (1997).

81 First, the activities of transnational corporations are not subject to a general (and

binding) system of international supervision. Second, the issue of EIA itself is

subject to a limited international regulation. Even when there is some sort of

international regulation, it is limited, usually, to projects with substantial

transboundary effects. As it currently stands, international environmental law does

not seek to regulate those construction projects which are contained within the

boundaries of one jurisdiction, even when they involve multinational cooperation: C.

Klein-Chesivoir, ‘Avoiding Environmental Injury: the Case for Widespread Use of

Environmental Impact Assessments in International Development Projects’ (1990)

30 Virginia J. of International Law 517, 527.

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division (between the public and private realms) that characterizes the

regulatory spectrum of the modern welfare state. The cornerstone of this

alternative vision is the idea that any construction activity creates, through its

interference in a singular geographical space, a micro ‘polity’, which

consists of the inhabitants (humans and non-humans!) of this space.

This

micro-polity is not just a reflection of common space/time boundaries but,

more importantly, of a common dilemma: how to cope, collectively, with the

potential impacts of a proposed construction project. Indeed, the fact that this

dilemma requires a collective solution is what makes it political.

Under this view the construction contract should constitute an integral

part of the constitutional’ framework through which this collective dilemma

is resolved, The construction contract is conceptualized, then, as one of the

tools through which the project of ‘ecologizing’ our political life could be

realized. ‘Ecologizing’ is interpreted in the spirit of Bruno Latour – not as

the sanctification of nature but as the invention of new political procedures

for managing this construction-induced ‘collective’.

The deference model

and the private/public dichotomy that informs it are, of course, inconsistent

with this constitutional vision. This constitutional vision fits nicely with the

idea of EIA, which is perceived by many observers not just as a technocratic

decision-making tool but as a consensus-building mechanism that aspires to

bring within its boundaries all those who might be affected by a construction

activity.

The more difficult question, of course, is how to translate this abstract

vision into a set of realizable institutional practices. This question is explored

in the remaining part of this section. In seeking possible implementation

paths I focus on two key points, which seem to me to be the most promising.

The first argues for the incorporation of an environmental management

system (EMS) into the construction contract. The second seeks to modify the

dispute resolution model that dominates the construction world. Consider

first the issue of environmental management. The main advantage of the

EMS concept is that it provides a way to integrate the environmental cause,

in a systematic way, into the decision-making structure of a business

endeavour. As such, it provides a way to bring some of the ‘externalized

100

82 As a ‘micro-constitution’ the construction contract should develop deeper sensitivity

to the details of the social situation in which it is embedded, where ‘social situation’

depicts the totality of societies, living organisms, and physical environment, which

interact in the context of a particular ecological problem.

83 See Latour, op. cit., n. 12, pp. 234–5.

84 See, for example, O. Renn et al. (eds.), Fairness and Competence in Citizen

Participation: Evaluating Models for Environmental Discourse (1995). The World

Bank adopted a similar cooperative vision, which views the process of EIA as a

cooperative effort that involves the borrower, the Bank, the affected populations, and

local NGOs; see the World Bank, ‘Public Involvement in Environmental

Assessment: Requirements, Opportunities and Issues’ in Environmental Assessment

Sourcebook Update No. 5 (1993).

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parties’ into the contractual universe of the lex constructionis. The

environmental management system of the International Organization of

Standardization, the ISO 14001, is the most likely candidate for such

incorporation, since it is currently the most widely used global EMS.

The ISO 14001 standard and its most important rival, the European

EcoManagement and Audit Scheme (EMAS)

are based on a similar vision,

which is to create a framework that will encourage the certified organization

to improve, continuously, its overall environmental performance.

ISO

14001 attempts to achieve this goal through a very simple scheme, which is

based on five general principles: commitment and policy, planning,

implementation, measurement and evaluation, and finally, review and

further implementation. What links these principles together is a general

commitment to a dynamic cyclical process of ‘plan, implement, check and

review’.

Linking this cyclical process to the environmental objectives that

were set out in the pre-contractual EIA should provide a mechanism for

implementing and reviewing the conclusions of the EIA.

The integrative and reflexive vision of the ISO 14001 and EMAS seems to

provide a good setting for confronting some of the key problems of the lex

constructionis. As was noted before, these problems emanate from the

discontinuity between the ‘pre’ and ‘post’ phases of the contractual project.

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85 In 1998 there were 5,637 ISO sites against 2,141 sites for the competing European

scheme (EMAS), see Anonymous, ‘ISO 14001 and EMAS Sites World-Wide’

(1998) 5 J. of the Institute of Environmental Management 3, 6. By the end of 2000

the total number of ISO 14000 certificates has risen to 22,897; see ‘ISO Survey of

ISO 9000 and ISO 14000 certificates – Tenth cycle: up to and including 31

December 2000’, available at .

86 ISO 14001 (1996) Environmental Management Systems – Specification with

Guidance for Use is the actual management system. A second standard, the ISO

14004 (1996) Environmental – Management Systems – General Guidelines on

Principles, Systems and Supporting Techniques is a guidance manual. The European

scheme was established in 1993 by Council Regulation (EEC) 1836/93 29 June

1993, OJ L168, 10 July 1993, 1, and became operative in 1995. The 1993 scheme

was revised in 2001 by the Regulation (EC) No. 761/2001 of the European

Parliament and of the Council of 19 March 2001 allowing voluntary participation by

organisations in a Community eco-management and audit scheme, OJ L114, 24

April 2001, 1 (henceforth EMAS II Regulation). The EMAS II Regulation

incorporates ISO 14001 as its environmental management system (see Annex 1 of

the revised regulation). EMAS II imposes, however, several additional obligations

that go further than the requirements of ISO 14001, particularly in the areas of

environmental improvement, external communication, and employee involvement.

For a review of the ISO 14000 series, see the ISO website at , and P.C.

Murray, ‘Inching Toward Environmental Regulatory Reform – ISO 14000: Much

Ado About Nothing or a Reinvention Tool?’ (1999) 37 Am. Business Law J. 35; for a

review of the EMAS II Regulation, see the EMAS website:

comm/environment/emas>.

87 See the ISO 14001 introduction at vi, and Article 3.1, and Article 1(2) of the EMAS

II Regulation.

88 ISO 14001, Annex A.1, at 6; Murray. op. cit., n. 86, pp. 45–8.

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This discontinuity tends to impede the efficient implementation of a pre-

contractual EIA, and, as such contributes to the culture of ‘externalization’

which characterizes the lex constructionis.

In order to create a temporal

continuity between the different phases of the construction project, the main

contract should provide both a monitoring mechanism, which would guarantee

that the conclusions of the preliminary EIA are actually implemented (in both

the design and execution of the works), and a mechanism for coping with the

problem of unforeseen contingencies. A possible response to the latter

challenge might be to create a mechanism of second environmental review.

This contractual mechanism should fulfill two goals. First, it should provide

an opportunity for re-evaluating the conclusions of the preliminary

environmental assessment in light of any new information (for example,

unforeseen changes to the original design or unpredicted environmental

effects). Second, it should provide clear procedures for programme revision,

which would enable the parties to incorporate the conclusions of such a

‘second review’ into the working programme.

These two tasks fit quite

naturally into the management cycle of the ISO 14001 standard.

Some features of the ISO 14001 standard are, however, inconsistent with

the constitutional vision that was promulgated above. In the first place, the

ISO 14001 is designed to operate mainly within a given organizational

structure – usually a business corporation. In contrast construction activities

involve, usually, a multiplicity of agents (owner, designers, constructors, sub-

contractors, suppliers, and future operators) who operate either simultaneously

or in a sequential fashion. The ISO 14001 system does not provide an

adequate answer to this institutional complexity, and it would have to be

modified accordingly.

A second shortcoming of the ISO 14001 standard, is

that it gives the organization a wide discretion, both in devising its

environmental plan and in designing the environmental indicators according

to which it will measure its performance.

If the basic ‘regulatory level’ is

102

89 The emphasis on the post-EIA problematique is consistent with the World Bank

understanding of the EIA process, which views the idea of post-EIA auditing as an

integral part the EIA process. See Articles 12, 13, 15 of Operational Directive 4.01

on Environmental Assessment (1991, updated 1996), and Annex C to OD April 2001

(Environmental Mitigation or Environmental Management Plan).

90 Article 13 of the new FIDIC forms, which deals with ‘Variations and Adjustments’,

can provide some guidance to the way in which such a review mechanism could be

designed. However, Article 13 is based on an either/or risk allocation that is, again,

at odds with the cooperative vision that is advocated here. The provisions of the

NEC that deal with programme revision (Articles 31, 32) can also provide useful

guidance for devising such procedures.

91 For example, the notion of continuous improvement would have to be interpreted as

project-specific rather than organization-specific.

See Murray, op. cit., n. 86, pp. 49–50. The introduction to ISO 14001 provides that:

‘. . . this international standard does not establish absolute requirements for

environmental performance beyond commitment, in the policy, to compliance with

applicable legislation and regulations and to continual improvement’, ISO 14001,

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low, as might be the case in many developing countries, the commitment to

continual improvement might not mean much.

One of the challenges of the

lex constructionis and the construction industry as a whole is, indeed, to fill

this gap. The integrity of the initial EIA has a crucial role in this context.

A final weakness of the ISO 14001 framework, is its undemanding position

with respect to public participation. The ISO 14001 standard does not view the

notion of public consultation as an integral element of the environmental

management system.

The involvement of the public is, however, a key

element of the contractual vision, which was promulgated here. Public

participation is important both in the context of post-EIA monitoring, and in

the context of second environmental review. In that respect the revised EMAS

regulation provides a more progressive model, both by introducing demanding

disclosure requirements,

and by requiring any certified organization to

103

introduction, at vi. Organizations certified under EMAS II will face higher demands.

This was achieved by introducing the concept of significant environmental aspects.

Article 1(2) of the EMAS II regulation states that ‘The objective of EMAS shall be to

promote continual improvements in the environmental performance of organisations

.. .’. Article 2(b) defines ‘continual improvement of environmental performance’ as

‘the process of enhancing, year by year, the measurable results of the environmental

management system related to an organisation’s management of its significant

environmental aspects, based on its environmental policy, objectives and targets . . .’

(my emphasis). The notion of significance is defined in Annex VI (Article 6.4).

93 Note, also, that under the ISO 14001 scheme, a firm can legitimately respond to

nonconformance by reducing the stringency of its declared goals on the ground that

the initial goals were ‘inappropriate’ (as long as the new goals comply with

regulatory guidelines): J. Switzer and J. Ehrenfeld, ‘Independent Environmental

Auditors: What Does ISO 14001 Registration Really Mean?’ (1999) Environmental

Quality Management 17, 27.

94 Article 4.4.3 of ISO 14001 requires the organization only to ‘consider processes for

external communication on its significant environmental aspects and [to] record its

decision’ (my emphasis). Furthermore, the ISO 14001 standard does not require the

publication of an annual environmental statement (see ISO 14004, Article 4.3.3.1).

This of course raises the question of the public accountability of the scheme. This

approach to the disclosure issue reflects mainly the concern of the United States

business community that such extensive disclosure would act as a platform for

criminal or civil litigation, and not as a platform for constructive dialogue; see

Murray, op. cit., n. 86, pp. 53–4. Responding to these concerns, several US states

have made an attempt to provide firms with certified EMS programmes with either a

statutory immunity from liability or a qualified privilege. For a more detailed

discussion, see Murray, id., pp. 53–62.

95 The organizations that will register under the new scheme will be required to

publish, on a yearly basis, an environmental statement, which should provide details

of the environmental performance of the organization against its environmental

objectives and targets (Art. 3, sub-paragraphs (2)(c) and (c) and (3)(b) of the EMAS

II regulation). The environmental statement shall be verified by ‘environmental

verifier’ (Art. 3(2)(d)). Further details with respect to the objectives, structure

(including data requirements), and modes of publication, of the environmental

statement are given in Annex III. Art. 3.6, which deals with the issue of public

availability, encourages the certified organizations to use various communicating

channels – including electronic publication, libraries, and so on.

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engage in true and open dialogue with its employees and the public at large.

The revised EMAS regulation thus makes an attempt to go beyond a purely

‘disclosure’ model, in which the deliberation is perceived only as an ad hoc

exercise, toward a model in which the dialogue between the organization and

the public is perceived as a continuous process. This approach fits nicely with

the construction context, where it is critical that any deliberation would take

place before the project is completed.

It is important to understand that this proposal does not seek to transform

the construction contract into some monstrous, all-embracing instrument.

Thus, I do not believe that the construction contract should provide a detailed

environmental performance schedule, or act as an environmental

management manual. Rather, this proposal seeks to encourage a greater

use of the construction contract as a coordination mechanism. As a

coordinating device the contract can, and should, refer to external sources

such as the World Bank’s EIA guidelines or the ISO 14001 standard, only

modifying them when required.

The technical modalities of such

incorporation are not complicated. Indeed, FIDIC model forms already use

this ‘legislative’ method, albeit in relation to quality assurance.

I believe

that this idea could find some support within FIDIC, which has been

involved over the last few years in an initiative to introduce the concept of

EMS to the construction industry.

A second area, which could be used to advance my ‘constitutional’ vision,

concerns the issue of dispute settlement. As was noted above, most of the

model forms include an arbitration agreement. This means that most of the

104

96 Thus, Article B(3) of Annex 1 of the Revised Regulation, entitled ‘external

communication and relations’, requires that the organization shall be able ‘to

demonstrate an open dialogue with the public and other interested parties including

local communities and customers with regard to the environmental impact of their

activities, products and services in order to identify the public’s and other interested

parties’ concerns’. Article B(4) of the same Annex requires certified organizations to

involve their employees in the operation of the environmental management system,

through, for example, suggestion-book systems, project-based working groups, or

environmental committees.

97 As the EMAS II regulation does with respect to ISO 14001.

Article 4.9, which appears in almost identical form in the construction, plant, and

EPC contracts, provides that: ‘The Contractor shall institute a quality assurance

system to demonstrate compliance with the requirements of the Contract. The

system shall be in accordance with the details stated in the Contract. The

Employer shall be entitled to audit any aspect of the system, . . .’ This is the EPC

version. The construction and plant contracts differ only in that they use the term

‘Engineer’ instead of the ‘Employer’. A similar provision could be used to

introduce an ‘environmental management system’ (‘EMS’) into the contract.

99 FIDIC published in 1995, in cooperation with UNEP and the International Chamber

of Commerce, a resource training kit on environmental management, which was

inspired, largely, by the ISO 14001 standard and EMAS. However, FIDIC has

viewed the concept of EMS as a purely managerial notion, and has made, so far, no

attempt to incorporate it into its model forms.

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disputes in the global construction market are adjudicated before private

arbitrators, usually in one of the main international arbitration centres. The

arbitration universe is, however, a closed world; it gives no voice to those

parties who are external to the contractual order. This closure, which means

that non-parties can raise claims against the contractual order only through

the ‘external’ court system, supports and perpetuates the private/public

separation which was criticized earlier. Breaking this separation clearly

requires an alternative dispute settlement structure.

The idea of Dispute Adjudication Board (DAB), which was adopted by

FIDIC’s new model contracts, can provide a useful starting point for

thinking about such an alternative structure.

100

The DAB is constructed

as an internal adjudicator/mediator, which should deal with any dispute

before it is forwarded to an external formal arbitration.

101

The main

advantage of the DAB concept is that by being in place at the outset of

the project, before the emergence of any dispute, it ‘is able to have

personal and contemporaneous familiarity with the development of the

work under the contract’ and to establish regular communication with the

parties.

102

This close contact with the project’s ‘reality’ distinguishes the

DAB from a post-dispute legal adjudicator, who necessarily relies, in

constructing her judgement, on documents and witnesses, rather than on a

direct knowledge of the project. It is this close contact, which makes the

DAB’s opinion with respect to any disagreement more acceptable to the

parties. Of course, to create this distinction between the DAB and a legal

adjudicator, it is essential that the ‘DAB’ be appointed by the parties at

the commencement of the contract, and will familiarize itself with the

project before the occurrence of any dispute.

103

Under the current construction contract the DAB members are

appointed by the parties.

104

This arrangement is unsatisfactory from my

105

100 See Article 20 to FIDIC new model-forms. The DAB shall comprise either one or

three persons.

101 Both parties have the right to submit the dispute to formal arbitration, usually under

the ICC Rules, if they do not accept the DAB’s decision, and fail to reach an

amicable settlement (Article 20.6 of FIDIC’s new forms).

102 G.L. Jaynes, ‘FIDIC’s 1999 Editions of Conditions of Contract For ‘‘Plant and

Design-Build’’ and ‘‘EPC Turnkey Contract’’: Is the ‘‘DAB’’ Still a Star?’ (1999) 17

International Construction Law Rev. 42, 45.

103 The construction contract establishes explicit procedures to enable the DAB to

familiarize itself with the project prior to any dispute. These include regular visits to

the site and allowing the DAB to request different documents (such as a copy of the

contract documents, progress reports, variations instructions, and so on). See

Articles 1–4 to the ‘Procedural Rules’ annex to the ‘General Conditions of Dispute

Adjudication Agreement’ appendix of the construction contract.

104 Article 20.2 provides that ‘If the DAB is to comprise three persons, each party shall

nominate one member for the approval of the other party. The parties shall consult

both these members and shall agree upon the third member, who shall be appointed

to act as chairman’.

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perspective, because it does not provide a voice to the extra-contractual

community. A possible solution would be to appoint a public

representative to the DAB, The power to appoint this member could be

conferred upon an acceptable third party.

105

This member should have the

right to accept complaints from the public and initiate internal discussions

within the DAB. A more difficult question is how to link this transformed

DAB with the arbitration world. To make this proposal more appealing, it

might be more realistic to limit any public-initiated deliberation to the

informal discussions at the DAB, and not to carry them further to the

arbitration phase. While this would formally give the contractual parties

the right to overrule any public-initiated DAB decision, I believe that it

would not stop the DAB from having some impact on the social reality of

the project. It is clear, however, that this idea requires further

experimentation.

106

The alternative contractual vision that was suggested in this section could

find some support in the new contractual paradigms that appeared recently in

the construction market. Both the ICE managerial model, which views the

contract as a stimulator of ‘good management’,

107

and the ‘partnering

ideology’ of the Egan report

108

indicates an increasing willingness within the

industry to adopt novel contractual models. The concept of partnering

provides a useful counter-metaphor to the public/private image; the ICE

model, for its part, includes several interesting ideas on the question of how

to use the construction contract as a management tool. Particularly

interesting is the attempt of the ICE NEC series to create a flexible

framework, which would encourage the parties to seek ‘win-win’ solutions

to unexpected problems.

109

However, while these new paradigms do signal a

willingness to experiment with alternative contractual models, they do not

106

105 Such procedure already exists in the contract for cases where the parties fail to

nominate a member or chairman to the DAB. See Art. 20.3.

106 For a more detailed discussion of the DAB concept, see Jaynes, op. cit., n. 102, p. 45,

and C.R. Seppala, ‘Letter to the Editor (Reply to Jaynes)’ (2000) 17 International

Construction Law Rev. 1.

107 See Hughes and Greenwood, op. cit., n. 21, p. 197 and Barnes, op. cit. n. 51, for a

discussion of the ICE new engineering contract.

108 J. Egan, Rethinking Construction: Report of the Construction Task Force to the

Deputy Prime Minister, John Prescott, on the Scope for Improving the Quality and

Efficiency of UK Construction (1998). For a further discussion of the ‘partnering’

paradigm, see B. Colledge, ‘Obligations of Good Faith in Partnering of UK

Construction Contracts’ (2000) 17 International Construction Law Rev. 175–7, and

Stipanowich, op. cit., n. 47, pp. 568–9.

109 See, Barnes, op. cit., n. 51, p. 93. The NEC includes (Article 16) an ‘early warning’

procedure which obliges the contractor and project manager to give an early warning

with respect to any matter that could increase the total cost, delay completion or

impair the project. It then provides that either the contractor or the project manger

can initiate an ‘earning warning meeting’ in which solutions to the unexpected

problem should be sought.

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provide, in themselves, an appropriate constitutional framework, since their

structures still retain a strong private/public perspective.

110

IV. THE ENGINEERING ETHOS AND OTHER CONTRIBUTING

FACTORS

The alternative contractual vision, which was sketched in the previous

sections, could face strong resistance. The ‘externalization’ culture of the lex

mercatoria is driven by strong economic interests, which cannot be

disregarded. The contractual changes, which were proposed above, are

likely to increase the cost of the construction project, and as such are highly

inconsistent with the economic perspective of the contract.

111

What I would

like to do in this concluding section is to point to some social processes,

which, together, could overcome this economic power. The first process is

internal to the construction market. It has to do with the cultural context in

which FIDIC operates what we might call the ‘engineering milieu’. I believe

that this unique institutional ethos – a product of special values, technical

competencies, and accumulated experience – could be conducive to an

attempt to change the environmental contours of the lex constructionis. This

unique ethos distinguishes FIDIC from business organizations, in which the

edict of profit-maximizing has a much more dominant role.

The engineering ethos is primarily a product of the unique training path of

civil engineers. Civil engineers are trained to provide solutions to very

pragmatic problems: how to construct bridges, high roads, chemical plants,

and so on. Traditionally, it was not their job to guarantee the profitability of

the project on which they were employed. Rather, as one commentator put it,

‘their prime responsibility is to ensure the safety and functionality of their

projects. Economics are important but slightly lower than safety in the

typical engineer’s hierarchy of values’.

112

The pragmatic orientation of civil

107

110 The new partnering initiatives, both in the United States and the United Kingdom,

still perceive their audience as the construction community, that is, the owner,

contractor, subcontractors, and design professionals. The inhabitants who populate

the project surroundings are still not conceived of as part of this emerging

‘partnership’, see Egan, op. cit., n. 108, paras. 36–37, and C.L. Noble, ‘Friend of the

Project – A New Paradigm for Construction Law Services in a ‘‘Partnered’’

Construction Industry’ (1998) 15 International Construction Law Rev. 79.

111 The introduction of an environmental management system and the establishment of

a Dispute Adjudication Board (DAB) would increase the cost of the contract. See,

for example, Murray, op. cit., n. 86, p. 43, fn. 48 (for the cost of ISO 14001

certification) and Seppala, op. cit., n. 106 (discussing the cost implications of the

DAB). These costs should be shared by the contractual community as a whole.

Placing all the costs on one party (for example, the contractor) would not only be

inconsistent with the political vision promulgated above, but would probably be

untenable from a financial perspective.

112 D.S.O. Russell, ‘Insights From the Three Gorges Study’ (1994) 21 Cnd. J. of Civil

Engineers 541, 545.

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engineers means that environmental concerns can be incorporated quite

naturally into the set of technical objectives and constraints that constitute a

particular ‘engineering problem’. From an environmental perspective, the

weaker commitment of the engineering community to the edict of profit

making constitutes a convenient setting for an agenda of ecological

transformation. The cultural framework in which FIDIC operates offers,

then, a receptive terrain for green ideas;

113

it distinguishes FIDIC from

economic-oriented organizations such as the WTO.

114

Indeed, over the last

decade FIDIC has made a substantial effort to develop greater awareness of

environmental issues among its members.

115

The recent environmental awakening within FIDIC has not found its way

yet to its normative products. It would be wrong, however, to dismiss

108

113 A similar process occurred in the chemical industry. In the wake of the Bhopal

tragedy in 1984, the chemical industry established a voluntary programme, the

Responsible Care Programme, which sought to improve environmental standards in

the chemical industry worldwide. See F.L. Reinhardt, ‘Bringing the Environment

Down to Earth’ (1999) 77 Harvard Business Rev. 149, 152–3.

114 While one of FIDIC’s principal tasks is, indeed, to stand ‘as the rightful

spokesperson for the business interests of the industry in the global forum’ (FIDIC,

Engineering Our Future (1998) i, my emphasis) the business perspective is not the

main ethos by which the organization orients itself. Thus, in the same 1998 report we

can also find the idea that FIDIC’s mission should be ‘To promote the business

interests of members in relation to the provision of technology-based intellectual

services for the built and natural environment, and while doing so, accept and

uphold our responsibilities to society and the environment’ (id., p. 25, my emphasis).

Of course, to what extent these broader commitments are realized in practice is a

matter for empirical analysis.

115 This effort was reflected by a series of pro-environmental documents and statements.

In 1990 FIDIC published a policy statement titled ‘Consulting Engineers and the

Environment’, which promulgates the environmental commitments of a consulting

engineer (it calls, for example, on each engineer, to ‘evaluate the positive and

negative environmental impacts of each project . . . [and] suggest alternatives to [his]

clients if environmental risks emerge’ (Art. 8)). Another recent report, FIDIC, id. – a

strategic action plan that should guide FIDIC into the twenty-first century – states

that one of the objectives of the organization would be to promote the commitment

of FIDIC’s members to environmental sustainability. Institutionally, this effort is

coordinated by a special task force for sustainable development. In 1999 the

sustainable development task force issued another strategy paper, ‘Sustainable

Development in the Consulting Industry’ (1999). The paper is particularly

interesting in our context because it is guided by a participatory outlook. It

encourages FIDIC members to contribute to the involvement of key stakeholders in

the construction process, to be willing to engage in a dialogue with the general

public in large and complex projects, and to contribute to the development of new

institutional structures in which this participatory outlook can be advanced (id., p. 8).

While the paper does not make any references to FIDIC contractual products, its

general message seems to be consistent with the contractual vision proposed in this

article. All of the documents referred to above are on FIDIC’s website:

ßBlackwell Publishers Ltd 2002

FIDIC’s green initiatives as mere cheap talk.

116

I believe that as a locus of

technical expertise and professional pride, FIDIC has a real potential (much

more than business oriented organizations such as the WTO) to act as a

bridge between the environmental and business communities. Several recent

social developments make this scenario more reasonable. These

developments could provide the necessary counterforce to the economic

motivations which lie behind the externalization praxis. They include an

increased environmental awareness within the realm of international

finance,

117

the increasing international presence of environmental NGOs

and the news media,

118

and the growing impact of transnational

environmental litigation.

119

These different phenomena present a common

threat to the discourse of externalization, in that they encourage the

participants in construction activities (through different means) to consider

more seriously the ecological consequences of their activities.

A final point. It is important to emphasize that the proposals made in this

article do not seek to achieve some kind of ‘perfect internalization’. While

adopting new procedures for project management and dispute settlement

should extend the discursive horizon of the lex constructionis, they could

also create new blind spots. Although I believe that in a transformed form

FIDIC’s contracts could be more attentive to environmental considerations,

some undesired effects are unavoidable. In particular, the reliance on

standard eco-management systems such as the ISO 14001 could subscribe

the contractual parties to a certain way of constructing and understanding

environmental problems. The technical outlook which characterizes the ISO

14001 standard means that environmental dilemmas would be constructed,

primarily, as technical problems of management and engineering. This

technocratic bias could be further exacerbated by the cultural background –

109

116 ‘Cheap talk’: a costless signal or communication. It should be noted in this regard

that FIDIC’s environ mental awaken ing is suppo rted also by economic

considerations. The report Engineering Our Future argues that the increasing

demand for new environmentally related services, such asenviromnental assessment

and environmental management, offer new business opportunities to the engineering

profession (FIDIC, id., p. 22).

117 See the discussion in P. Thompson, ‘Bank Lending and the Environment: Policies

and Opportunities’ (1998) 16 International J. of Bank Marketing 243; S. Williams,

‘U.K. Ethical Investment: A Coming of Age’ (1999) 8 J. of Investing 58; and K.A.

Strasser and D. Rodosevich, ‘Seeing the Forest for the Trees in CERCLA Liability’

(1993) 10 Yale J. on Regulation 493.

118 See the discussion in G. Jordan. ‘Indirect Causes and Effects in Policy Change: the

Brent Spar Case’ (1998) 76 Public Administration 713, and P. Wapner, ‘Politics

Beyond the State: Environmental Activism and World Civic Politics’ (1995) 47

World Politics 311.

119 See the discussion in F.K. Juenger, ‘Environmental Damage’ in Transnational Tort

Litigation: Jurisdictional Principles, eds. C. McLachlan and P. Nygh (1996) 199,

and A. Rosencranz and R. Campbell, ‘Foreign Environmental and Human Rights

Suits Against U.S. Corporations in U.S. Courts (1999) 18 Stanford Environmental

Law J. 145.

ßBlackwell Publishers Ltd 2002

the engineering milieu – in which this concept would be invoked. This

interpretative ‘bias’ could lead to the marginalization of other points of view,

which offer different understandings of the relationships between humans

and nature.

There is no clear answer to this problem. For me, the most plausible

response lies in expanding the reflexivity of the contractual package.

Flexible participatory procedures should play a prominent role in this effort.

These procedures should enable the public to participate, in a meaningful

way, in the assessment (and management) of construction projects.

120

Only a

genuine commitment to involve the public in the assessment and

management of the construction endeavour could guarantee the necessary

‘plurality of thoughts’ which is needed to overcome/supplement the

technocratic orientation of the eco-management concept and the engineering

milieu.

110

120 There is an increasing recognition within international bodies of the importance and

value of public participation, see the World-Bank, op. cit., n. 84 and UNCITRAL,

op, cit., n. 34, p. 202. See, further, Dorf and Sabel, op. cit., n. 75.

ßBlackwell Publishers Ltd 2002

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