Asia Pacific Construction Guide
I am pleased to present the Baker McKenzie Asia Pacific Construction Guide, covering 10 key questions on the status of the construction sector considered across 12 key jurisdictions in the Asia Pacific region.
"The Asian Century" has been defined by the rise of megacities in fast-growing economies, involving rapid urbanization, infrastructure construction and renewal and the need to service a booming urban population. Construction in these emerging markets will become a $6.7 trillion business by 2020, accounting for some 55% of global construction output, and is expected to double within a decade according to the "Global Construction 2020" report published by Global Construction Perspectives and Oxford Economics.
In this climate, issues regarding the interpretation and enforceability of contracts across the region become increasingly complex, given the diversity of Asia’s legal environment with varied legal traditions (civil law, common law and mixed) and differing approaches to commercial issues. This guide gives an overview of the regulatory and political issues arising on commercial contracts in the Asian engineering and construction sectors and the extent to which those issues present barriers or opportunities in the cross-border construction business in the Asia Pacific region.
Some interesting current trends and points emerged from the compilation of this guide, for example:
- In general, the outlook for construction across the region is strong. There is significant infrastructure spending occurring in Australia, China, Hong Kong, Japan, Philippines, Singapore, Taiwan, Thailand, Myanmar and Vietnam. Residential and commercial growth is strong in Australia, China, Hong Kong, Malaysia, Thailand and Vietnam, but growth is expected to flatten or be slow in China, Indonesia and Singapore.
- China’s One Belt, One Road (OBOR, also known as the Belt and Road Initiative or BRI) project financing and assistance is influencing infrastructure projects, across the region and stimulating growth. Some countries have embraced OBOR wholeheartedly (e.g. Philippines, Hong Kong, Thailand and Vietnam), some countries are becoming involved more slowly (e.g. Australia, Malaysia, Myanmar and Singapore), and some countries are not currently involved, possibly due to geo-political factors (e.g. India, Japan and Taiwan). This is having a profound influence in Asia and beyond. For more information on OBOR generally, see the detailed October 2017 Baker McKenzie report: 'Belt & Road: Opportunity & Risk'.
- Some jurisdictions are experiencing construction booms or lack local contractors with sufficient scale to perform large infrastructure work, presenting opportunities for foreign contractors to consider entering the market (e.g. Hong Kong, Japan, Myanmar and Taiwan).
- Lack of skilled labor imposes constraints in many jurisdictions, including Hong Kong, Japan, Myanmar and Malaysia. Interestingly, this shortage has also occurred in emerging sectors such as solar power construction, where skilled labor is lacking in Malaysia and Japan.
- Alongside to the potential opportunity for contractors in booming markets, some jurisdictions impose restrictions designed to protect local suppliers. These restrictions range from setting tendering requirements for government projects (e.g. Hong Kong and Australia), substantial state financing of construction projects (e.g. China), requiring local supervision or sign-off in some jurisdictions (e.g. Hong Kong, Myanmar and Taiwan) through to strict requirements that only locally owned construction contractors can undertake projects within the jurisdiction (e.g. Indonesia, Philippines, Vietnam, and Japan in some earthquake affected zones
- In many jurisdictions, standardized construction contracts prefer the principal's interests rather than those of the contractor (e.g. Australia, Hong Kong, Malaysia, Singapore, Taiwan). For example, in Hong Kong and Singapore, Government contracts are now more frequently requiring design and build/turnkey delivery by contractors, transferring risk away from government into the hands of the main contractor.
- Where local standardized forms are not used, contracts are often modified versions of the standard FIDIC contracts, for example in Indonesia, Malaysia, Taiwan and Vietnam
- Arbitration is generally the preferred dispute resolution mechanism (e.g. in China, Hong Kong, Indonesia, Malaysia, Singapore, Thailand, Myanmar and Vietnam), but other forms of informal dispute resolution are widely used
- Security of payment legislation is gradually being rolled out across the common law jurisdictions in the region. The common law jurisdictions have mostly enacted some form of security of payment regime with adjudication as a dispute resolution mechanism (e.g. Australia, Malaysia, Singapore and New Zealand, with Hong Kong legislation yet to come into force). This serves as some protection for contractors and those further down the chain of contracts, giving some comfort to new entrants to these construction markets
This guide serves as a first step in navigating the range of legal and commercial considerations when contracting in Asia.
We hope that this guide is useful to you and please "stay tuned" for future publications.
Anthony B Whelan
Head of Construction, Asia-Pacific Region