The principal laws governing the construction market in Bangladesh include the following:

• Contract Act 1872;
• Building Construction Act 1952;
• Town Improvement Act 1953;
• Environment Conservation Act 1995;
• Building Construction Rules 1996;
• Natural Water Bodies Protection Act 2000;
• Private Residential Project Land Development Rules 2004;
• Public Procurement Act 2006;
• Public Procurement Rules 2008;
• Dhaka Metropolitan Building (Construction, Development, Preservation and Demolition) Rules 2008;
• Real Estate Development and Management Act 2010;
• Acquisition and Requisition of Immovable Property Act 2017;
• Bangladesh National Building Code 2020; and
• Environment Conservation Rules 2023.

Public Procurement Act 2006 and Public Procurement Rules 2008 govern the procurement of construction works and services using public funds by the government or its ministries, departments, statutory bodies, etc. Construction works include all works associated with the construction, reconstruction, site preparation, demolition, repair, maintenance or renovation of railways, roads, highways, buildings, infrastructure, structures or installations, or any construction work relating to excavation, installation of equipment and materials, decoration, etc. Services include procurement of goods or works relating to the operation and maintenance of construction works, and any third-party services, including security services.   

In order to promote foreign investment in the infrastructure sector, the government of Bangladesh encourages implementation of large-scale public infrastructure projects, such as railways, roads, seaports, airports, expressways, flyovers, economic zones, etc, through public-private partnerships (PPP). PPP construction projects and government-to-government partnership projects are governed by, among others:

• Public Private Partnership (PPP) Act 2015;
• Policy for Implementing PPP Projects through Government to Government (G2G) Partnership 2017;
• Procurement Guidelines for PPP Projects 2018;
• Guidelines for Unsolicited Proposals 2018;
• National Priority Project Rules 2018;
• Rules for Public Private Partnership Technical Assistance Financing 2018; and
• Rules for Viability Gap Financing for Public Private Projects 2018.

The engineering, procurement and construction (EPC) model is the dominant contract model in the construction market, where the contractor performs all aspects of the work necessary to provide a completed operational construction project within the pre-agreed contract price and completion time. 

A PPP contract is a long-term agreement between a government agency and a selected private partner. Prior to or after signing the PPP contract, the selected private partner incorporates a project company. Once the company is incorporated, all rights and obligations of the private partner are assigned to the project company. Under the PPP arrangement, the private partner usually assumes the responsibility of financing, constructing, and operating the PPP project. In return, they receive payments from the government and/or collect charges, levies or fees from the users of the PPP project for a certain period.

The PPP Act states that the parties may include any of the following matters in the PPP contract:

• modality of the project;
• term of the PPP contract;
• technical specification and compliance standard;
• environmental and security requirements;
• performance indicators and date of completion;
• expenditure recovery mechanism through collecting levy and strategy for its adjustment;
• construction and operation bond;
• insurance;
• acceptance test and method;
• rights and obligations of the parties and risk allocation;
• modality and amount of government financial participation;
• transfer of assets (if any) at the end of the PPP contract;
• post transfer confirmation letter and method;
• submission of report;
• supervision strategy of the contracting authority;
• ownership of assets;
• immediate steps during natural disaster;
• governing law;
• provision for arbitration;
• rights over project area; and
• security interest, etc.

There are various PPP models. Depending on the nature of the project, parties can adopt any one of the models. Some common PPP models include: 

• build-operate-transfer (BOT) contract, under which the private party is responsible for designing, constructing, and operating the project during the contracted period and thereafter transferring the project back to the government agency (ie, the employer);
• build-own-operate (BOO) contract, under which the private party finances, builds, owns and operates the project and the government agency purchases the goods and services produced by the project;
• build-operate-lease-transfer (BOLT) contract, under which a government agency gives a concession to a private entity for designing and building a project, owning it, leasing it to the government agency and subsequently transferring the ownership of the project to the government agency upon expiration of the lease;
• design-build-operate-transfer (DBOT) contract, under which the private party is responsible for designing, constructing, financing, and operating the project for the concession period and thereafter transferring the project back to the government agency; and
• operate-maintain-transfer (OMT) contract, under which the private party operates the project, ensures maintenance and provides training before handing the project to the government agency.

The use of standard contracts is not mandatory in Bangladesh. Parties may adopt any standard contract they consider appropriate for the project. Standard contracts published by the International Federation of Consulting Engineers, known as FIDIC, and the Engineering Advancement Association of Japan (ENAA) are often used for construction projects. Where parties want to deviate from the standard contracts, they agree to special conditions of contact which form part of the contract.

Employers

The owners of construction projects act as employers of the construction projects. The owners or employers can be individuals, private corporations, government ministries, or any offices or directorates or departments or divisions under a ministry, or corporations or statutory bodies, local governments, or any other organisations.

Rights of employers

The rights of the employer may vary depending on the construction model (EPC, BOT, BOO, BOLT, DBOT, OMT, etc), and the specific conditions agreed by the parties. The general rights of an employer may include the following:

• obtaining various securities in the amount, manner and form specified in the contract including advance payment security and performance security for the due performance of the contract;
• right to receive indemnity, liquidated damages, impose penalties on the contractor in case of breach of contract, delay in completion of the work, non-performance of the contract by the contractor; 
• withholding a partial amount from invoices for a pre-agreed defect liability period;
• ownership of intellectual property relating to all drawings, documents and other materials relating to the project;
• right to extend time for completion of the project; and
• right to terminate the contract for breach.

Obligations of employers

The obligations of the employer may vary depending on the construction model (EPC, BOT, BOO, BOLT, DBOT, OMT, etc), and the specific conditions agreed by the parties. The general obligations of an employer may include the following:

• acquiring and handing over of construction site and access thereto to the contractor, and providing access to all other areas required for the proper execution of the project;
• obtaining construction-related permits, approvals, and licenses from the government authorities which are necessary for the construction work;
• assisting in the import and export of contractor’s equipment; 
• compliance with the payment obligations;
• providing necessary personnel if required by the contract; and
• approving or appointing subcontractor(s) if so required by the contract. 

Relation between the employer and the contractor, the subcontractors and the financiers

The relationship between the employer and the contractor is on a principal-to-principal basis. In respect of any subcontractor appointed by the contractor, the subcontractor is an agent of the contractor, and the contractor will be responsible for the subcontractor to the employer. There may be a separate contractual relationship between the employer, the contractor or the subcontractor on the one hand and their respective financiers on the other hand. The financiers may have supervisory rights, a security interest in the project and the right to obtain progress reports, etc. 

Contractors

The construction contractors can be individuals, proprietorships, partnerships, companies, corporations, joint ventures or consortiums. The contractors may be either local or foreign, or a joint venture or consortium of local and foreign parties.

Rights of contractors

The rights of the contractor may vary depending on the construction model (EPC, BOT, BOO, BOLT, DBOT, OMT, etc), and the specific conditions agreed by the parties. The general rights of a contractor may include the following:

• deploying equipment, machinery, materials and personnel on the construction site;
• receiving payment from the employer for the construction work performed;
• receiving an additional price in the event of any variation in the scope of work; and
• proposing incremental work to the employer for effective completion of the project;

Obligations of contractors

The obligations of the contractor may vary depending on the construction model (EPC, BOT, BOO, BOLT, DBOT, OMT, etc), and the specific conditions agreed by the parties. The general obligations of a contractor may include the following:

• paying earnest money at the time of tendering;
• furnishing bank guarantees and required securities in the form and manner as agreed in the contract;
• complying with the employer’s requirements and specifications;
• completing and handing over the construction project within the completion time;
• removing machinery and equipment from the construction site after completion of the construction project; and
• rectifying any defects in the construction work during the defect liability period.

In respect of the relationship between the contractor, employer, subcontractor and financier, see 2.1 The Employer. 

Subcontractors

Subcontractors can be individuals, proprietorships, partnerships, companies, corporations, joint ventures or consortiums. Subcontractors may be either local or foreign, or a joint venture or consortium of local and foreign parties. Typically, the scope of works of a subcontractor does not go beyond the scope of works of the main contract between the employer and the contractor.

Rights of subcontractors

Rights of the subcontractor depend on the subcontract. General rights of the subcontractor include:

• receiving payment for the services performed;
• disputing demands which are not pre-agreed; and
• seeking remedy for breach of the subcontract.

Obligations of subcontractors

Obligations of the subcontractor depend on the subcontract. General obligations of the subcontractor include:

• complying with the specifications and timelines to complete the work; and
• removal of machinery, equipment and material from the site after completion of the work.

Relation between the subcontractors, employer, contractor and financiers

Usually, the subcontractors are engaged by the contractors in compliance with the requirements set out in the contract. It is also common for the contractors to engage subcontractors nominated by the employer. No contractual relationship exists between the employer and the subcontractor. A subcontractor is an agent of the contractor. A subcontractor does not have any right to make direct claims against the employer.

Financiers are not parties to the construction contract between the contractor and the subcontractor. Financiers can create a security interest over the construction contract or subcontract by way of assignment.

Financiers

Banks, financial institutions, non-banking financial institutions typically act as financiers in a construction project. These financiers can be local, foreign, or a combination of both. Both bilateral loans and syndicated loans are common. There are also construction projects that are self-financed or financed by private entities.

Rights and obligations of financiers

Generally, since financiers are not a party to the construction contract, they do not have express rights and obligations under the construction contract.

General rights of financiers in relation to employer, where the employer is the borrower, include:

• receiving updates on the progress of the project;
• securing the loan and applicable interest; a loan is generally secured by hypothecation of receivables from the construction project, mortgage of the project land, pledge of shares of the shareholders of the borrower company, corporate guarantee of the corporate shareholders of the borrower company, and creating a charge over borrower’s assets and properties;
• invoking a security interest upon occurrence of an event of default or breach of terms of the loan agreement;
• step-in rights in the project, including the right to have any party novated and/or right or obligation assigned to a third party; and
• approving or consenting to any deviation in the construction project.

Financiers have a general obligation to make the funds available per the financing agreement.

Relation between the financiers, subcontractors, employer and contractor

In respect of the relationship between the financiers, subcontractors, employer and contractor, see 2.1 The Employer.

Architecture and engineering consultant companies or firms typically act as the designer in construction projects. A designer may be either local or foreign, or a joint venture or consortium of local and foreign parties.

Under a build-only model, the designer engaged by the employer is responsible for the design of the construction works. The contractor is responsible for implementing the construction works as designed by the designer and per the contract documents. The designer bears the responsibility for any defects in the design.

Under a design-and-build model, the contractor is responsible for designing as well as implementing the construction works per the design. Under this model, the contractor can make changes to the design to make the construction works fit for their purpose. 

The contractor bears the responsibility for any defects in the design and the construction works. 

The scope of work in construction contracts is determined based on the employer’s requirements and nature of the project. Typically, the scope of work includes the following:

• project background;
• design and engineering requirements for the project;
• name of the code(s) to be complied with in respect of different aspects of the construction project;
• details in respect of the equipment, machines, materials, tools, civil work, spare parts, personnel, transportation of personnel, utilities, port clearance, payment of customs duty, insurance, testing, commissioning, defect liability, etc;
• details in respect of subsoil and geotechnical investigations to be carried out by the contractor;
• acquisition of the project land;
• site clearance and dismantling of structures and removal of utilities before commencement of the construction works;
• implementation schedule and the delivery modes;
• construction of temporary site offices, connected works such as construction of access roads, etc; and
• procedure for providing progress reports by the contractor.

A variation includes an addition or alteration to the original scope of works. A variation typically increases or decreases the contract price and completion time of the construction project. Construction contracts typically contain clauses for variations to the scope of work or contract price. A variation proposal is made by way of issuance of a change order either by the employer or the contractor. Variation clauses consist of terms relating to:

• employer’s right to request a variation;
• contractor’s right to request a variation;
• procedure on how to proceed with and execute changes; and
• consequences of a change order in respect of, among others, additional cost, extension of completion time, suspension or termination of work, invoking dispute resolution mechanism, etc. 

Both the employer and the contractor can have rights to request variations to the original scope of work in compliance with the procedure set out in the contract. Variations to the scope of work and the contract price are subject to the agreement of the parties. Certain construction contracts contain provisions allowing variation of the scope of work that does not result in an increase in the contract price beyond a pre-agreed capped price, such as 10% of the pre-agreed contract price. 

In respect of how the responsibilities regarding the design process are divided between the employer, the designer, the contractor and other parties, see 2.5 The Designer.

Usually, the employer does not carry out the construction works, but rather oversees and supervises the construction works and the implementation of the completion schedules by the contractor. The contractor carries out the construction works based on the design provided by the employer’s designer in a build-only model contract, or designs and carries out the construction works in a design-and-build model contract. Subcontractors carry out the specific part of construction works for which the subcontractors are engaged. Third parties may be engaged in construction works for the purpose of supplying materials or equipment or for providing other services, if so provided for in the contract.

The responsibilities regarding the status of the construction site in relation to pollution, underground obstacles, geotechnical conditions, etc, are usually specified in the construction contract. However, both the employer and the contractor are responsible for complying with the laws and regulations that are applicable to a particular aspect of construction works. 

Pollution

The employer and the contractor are required to comply with the applicable laws, regulations and guidelines that deal with the conservation of the environment. Construction contracts usually contain provisions making the contractor responsible for taking care of environmental and social issues during the implementation of the construction works, for complying with the employer’s approved environmental and mitigation plan, and for any environmental pollution.

Underground Obstacles, Geotechnical Conditions

Construction contracts usually contain provisions requiring the contractor to inspect and examine the site and its surroundings on their own responsibility to ensure they are satisfied with the nature of the site, ground and subsoil. Construction contracts may specifically require the contractor to carry out subsoil and geotechnical investigations. In such situations, the contractor would generally bear the risk of any underground obstacles and geotechnical conditions.

The employer may also carry out subsoil and geotechnical investigations by engaging relevant experts and provide the subsoil and geotechnical investigation reports to the tenderers as part of the tender documents. The employer may require the tenderers to rely on such subsoil and geotechnical investigation reports in submitting their bids. If during the implementation of the construction work, the subsoil and geotechnical site conditions are found to be different from those presented in the reports supplied by the employer, the employer will generally bear the risk for underground obstacles and geotechnical conditions.     

Archaeological Finds

All antiquities and other objects of value found on the construction site or during excavation work are regulated by the Antiquities Act 1968.

The permits required for a construction project depend on the nature and scope of the project. Generally, the following permits are required for a construction project: land use certificate, large and specialised project permit, construction permit and occupancy certificate. No-objection certificates or clearances from various regulators are also required, such as local government, department of environment, department of fire service and civil defence, power distribution company, water development authority, water supply and sewerage authority, civil aviation authority of Bangladesh, Bangladesh telecommunication regulatory commission, etc.

Construction contracts will contain clauses imposing responsibility on the employer or the contractor to obtain permits, approvals, licenses, clearances, no-objection certificates, etc. Typically, construction contracts impose responsibility on the employer to obtain permits, approvals, licenses, etc, which are required to be obtained in the name of the employer, for instance, construction plan approval, environmental clearance, etc. The contractor is required to obtain permits, approvals, licenses, clearances or no-objections certificates which are required to be obtained in the name of the contractor, for instance, an import permit for importing the contractor’s equipment. Usually, the employer assists the contractor in obtaining necessary permits.   

The maintenance of the construction work until completion would include maintaining the construction works, materials and equipment on the construction site, and the maintenance of a completed construction project usually includes employing qualified personnel and taking necessary measures in relation to the project site, machinery, systems and facilities, including utilities, in order to ensure the continuous operation of the construction project.       

Contract terms typically dictate which party or parties are responsible for the maintenance of the construction works. Construction contracts usually contain provisions imposing responsibility on the contractor for maintaining the construction works, materials and equipment on site until the date of completion and delivery of the project to the employer. After the delivery, the employer is responsible for the operation and maintenance of the construction project. However, the contractor remains responsible for repairing, replacing or otherwise making good any defects in the construction project during the defect liability period. Usually, the contractor is not responsible for any defect caused by improper operation and maintenance of the construction project by the employer.

It is possible for an employer to execute an operation and maintenance contract (O&M contract) with the contractor or any independent third party for the purpose of the operation and maintenance of the construction project. In such circumstances, the contractor or the third party undertakes the responsibility to operate and maintain the project per the agreed terms and conditions.   

The necessary functions related to the construction project are usually included in the construction contract.

In addition to construction, other functions relating to the financing, operation and transfer of a construction project are common in PPP projects. In PPP projects, the project company undertakes the responsibility to construct, finance, operate and transfer the construction project after a certain time to the employer.   

The contractor is responsible for carrying out all the tests relating to the delivery of a completed, operational and functional project to the employer at the contractor’s cost and within the time agreed in the contract. The employer, project manager or their designated representatives are entitled to attend the tests undertaken by the contractor at the employer’s cost. When the contractor is ready to carry out any test, the contractor gives advance notice to the employer or project manager. If any test fails, the contractor takes corrective measures and repeats the test by providing advance notice to the employer or project manager. Once the test is successful, the contractor provides a test report to the employer or project manager. 

Construction contracts contain provisions relating to the completion, takeover and delivery of the construction project. When the contractor considers that a construction project has been completed structurally and operationally, the contractor notifies the employer to inspect the project with the contractor and other relevant consultants. Following the required inspection, if the employer is satisfied that the construction project has achieved the operational completion per the contract, the employer issues a completion certificate to the contractor. If the employer notifies the contractor of any defects or deficiencies, the contractor shall remedy the defects or deficiencies and repeat the process. The completion certificate states, inter alia, the date on which the contractor has achieved the completion and the date on which the project is delivered to, and possession taken over by, the employer. Once the completion certificate is issued, the contractor may be entitled to the release of the retention payment relevant to the completion of the project. 

Usually, construction contracts contain a provision regarding defect liability, including the period of defect liability. Once the completion certificate is issued, the defect liability period starts. During the defect liability period, if any defect is found in the construction project, such as in the design, engineering, materials, and workmanship supplied by the contractor, the contractor is responsible for remedying the defect.

If the contractor fails to remedy the defect, following a notice to the contractor, the employer may proceed to remedy the defect, and the cost incurred by the employer can be recovered from the contractor or may be deducted by the employer from any money due to the contractor or claimed under the performance security furnished by the contractor to the employer.

Construction contracts specify a notice period within which the employer is required to notify of any defect in the construction work to the contractor. If the employer fails to notify within the specified period or the defect liability period expires, the employer bears the responsibility for any cost in remedying the defect.

Parties are free to adopt any method of establishing the contract price. A fixed-price method is common. Under the fixed-price method, parties agree to a fixed price for the entire construction work, and all project-related costs such as labour, materials, equipment, overhead expenses, etc, are included in the price. Construction contracts contain provisions for variation of the contract price. 

Construction contracts contain the terms, procedure and schedule of payment. Payment terms in construction contracts include:

• payment of an agreed percentage of advance upon execution of the agreement;
• payment of an agreed percentage upon submission of design;
• payment of an agreed percentage upon mobilisation of contractor’s equipment, personnel and construction materials at the construction site;
• payment of an agreed percentage upon satisfactory completion of specified test work; and
• payment of an agreed percentage upon successful completion and delivery of the construction work; 

The terms and procedures of payment may require the contractor to provide along with the invoice a bank guarantee from a bank in Bangladesh covering the invoice amount to be valid up to the contract period. All payments are subject to deductions of applicable taxes. 

Construction contracts usually contain a mechanism for interim payment to be made to the contractor for the work completed. The contractor submits a statement of works, the employer scrutinises the works, the employer agrees on the amount to be invoiced by the contractor and requests the contractor to submit the invoice, then the employer issues an interim payment certificate stating the amount due to the contractor and the time within which the payment will be made. The interim payments are made on an estimate of works done and are adjusted at the final account stage. The interim payment mechanism helps the contractor’s cash flow.

The indexation of prices is used in construction contracts. The construction contract can contain provisions on the allocation of risk for (large) price fluctuations.

Advanced payments, delayed payments and/or interim payments are generally used in construction contracts. See 4.1 Contract Price.

Construction contracts typically contain provisions requiring the employer to pay interest in case the employer fails to make payment by the respective due date. The contracts contain the applicable interest rate.

Construction contracts usually contain the manner in which the contractors are to issue invoices to the employers and the timelines within which the employers are to make the payments. One common method of invoicing is based on the interim payment certificate issued by the employer. Regarding how invoices are issued by the contractor in relation to interim payments, see 4.1 Contract Price.   

The contractor, within a date specified in the contract, submits to the project manager appointed by the employer a detailed programme of performance of the contract showing the sequence in which it proposes to provide design of the construction work, mobilise the personnel and equipment, supply the material to be supplied by the contractor, complete the construction work, and the date by which the employer is required to fulfil its obligations under the contract. The programme must be complied with on the basis of the time schedules and any other dates and periods specified in the contract. The contractor monitors the progress of all the activities and submits progress reports to the project manager. In case the progress falls behind the programme, the employer may request the contractor to submit a revised programme and take necessary measures, such as increasing manpower, to ensure that the works are completed within the completion time. 

In the event of delay in completing the work, the contractor is required to notify the employer in writing as soon as reasonably practicable and seek an extension of time providing particulars of the events or circumstances justifying the extension of time. After receipt of the notice by the employer, the parties discuss the situation and take necessary steps including mitigating steps. If delay is justified under the contract, for instance, the delay was caused by a force majeure event or unforeseen circumstance or due to any change in the scope of the work by the employer, the contractor usually gets an extension of time and the extra cost attributable to the delay. If the delay is due to the contractor, the employer is entitled to claim liquidated damages per the contract.

In the event of delay, the employer can:

• claim liquidated damages, which is a pre-agreed amount of damages required to be paid by the contractor to the employer for the delay; the contract contains the rate of and the maximum amount of money that can be claimed as liquidated damages;
• terminate the contract and claim compensation for any loss or damage caused by the breach of contract by the contractor;
• engage a new contractor to complete the work and seek indemnification from the defaulting contractor; and 
• encash bank guarantees furnished by the contractor.       

The grounds based on which the employer provides time extensions are usually contained in the contract. They would include any change in the scope of work by the employer, the occurrence of a force majeure event, unforeseen circumstances, a change in the law and regulation impacting the performance of the contract, and any default or breach of contract by the employer.

The contractor usually submits a notice of claim for an extension of time within a prescribed time setting out the particulars or events justifying the extension of time and providing supporting documents, such as progress reports, delay analysis reports and any other information or documents to substantiate the extension request. If the contractor fails to seek an extension of time in compliance with the pre-conditions provided in the contract, there is a risk that the employer may refuse the time extension request.

If the employer refuses to extend the time on any grounds, which the contractor considers unjustified, the contractor has the right to invoke the dispute resolution mechanism, such as arbitration, provided in the contract.

Construction contracts usually define the expression “force majeure” as events and circumstances beyond the control of the parties, and provide a list of force majeure events which include war, flood, riots, fire, cyclone, earthquake, terrorist attack, etc. It is possible to contractually limit or exclude certain circumstances from being qualified as force majeure. The consequences of a force majeure event are provided for in the contract, which include suspension of work during the continuance of the force majeure event, extension of completion time, and termination of the contract if the force majeure event subsists beyond a time specified in the contract. 

Unforeseen circumstances can be governed by law, or contractually agreed upon by the parties. Section 56 of the Contract Act 1872 states that a contract the performance of which becomes impossible or unlawful is void.

Construction contracts usually contain a list of circumstances which would qualify as unforeseen circumstances. Such circumstances can include any physical condition or artificial obstruction or sub-surface ground condition, that could not have been foreseen prior to the date of the execution of the contract. Construction contracts contain steps to be taken by the contractor following the discovery of an unforeseen site condition. Typically, the contractor is required to notify the employer promptly of any unforeseen site condition explaining the nature of the unforeseen condition, additional work that would be required, including the steps the contractor proposes to take to overcome the same, the extent of anticipated delay, additional cost and expense that the contractor is likely to incur, etc. After receiving such a notice, the employer discusses it with the contractor and decides on the actions to be taken. Following such consultation, if the employer instructs the contractor to take any action, the employer pays the additional cost and expenses and extends the completion time.

Depending on the terms of the contract in relation to the contractor’s obligation to carry out investigations of the site condition prior to the execution of the contract, the employer may dispute the contractor’s claim that a particular site condition is an unforeseen site condition and seek to impose the liability relating to such condition on the contractor. In this case, the employer could argue that the contractor could have foreseen the site condition had it properly performed its obligations relating to the site investigation. If the contractor does not agree with the employer, the dispute resolution clause can be invoked.

Disruption is not an express legal ground for an extension of time. If the disruption is such that it makes the performance of the contract impossible, Section 56 of the Contract Act 1872 may be invoked.

Disruption in relation to the supply of materials, equipment or personnel may be dealt with and agreed to be a ground for extension of time in the contract. In the absence of a contractual provision on disruption, depending on the wording of the force majeure clause, disruption may be interpreted as a force majeure event. The party relying on the disruption has to establish the nexus between the disruption and the impact of disruption on the performance of the construction work. Whether the relevant party has taken any reasonable measure to mitigate the impact of disruption is one of the relevant factors.     

Some liabilities which cannot be contractually excluded include liabilities arising from fraud or wilful misconduct, personal injury or death caused by the negligence or breach of duty, breach of statutory obligations relating to safety regulations or environmental laws.   

The concepts of wilful misconduct and gross negligence exist in Bangladesh. The principle of duty care under the law of tort governs negligence. 

Construction contracts usually contain provisions making the contractor liable for loss or damage caused by gross negligence, fraud, criminal or wilful misconduct of the contractor.

It is possible for the parties to contractually limit their liability. Usually, the liability of the contractor is limited. Limitation of liability clauses generally state that the contractor shall not be liable to the employer whether in contract or tort or otherwise for any indirect or consequential loss or damage or loss of profits, and provide an upper limit of the aggregate liability of the contractor to the employer. Limitation of liability clauses state that such limitation of liability does not apply to the liquidated damages or to the cost of repairing or replacing defective equipment. Construction contracts contain an upper limit which can be claimed as liquidated damage, for instance 10% of the contract price.

Limitation of liability of the parties in respect of compensation for breach of contract is recognised in Sections 73 and 74 of the Contract Act 1872.

Indemnity clauses are common in almost all construction contracts. The extent of indemnification varies depending on the terms of the contract. Typically, the employer seeks to be indemnified by the contractor in relation to:

• suits, actions or administrative proceedings, claims, demands, losses, damages, costs and expenses including attorney’s fees and expenses arising from the acts of the contractor or its subcontractor or their employees, officers or agent for which the employer may become liable;
• death or personal injury or loss or damage to any property caused or contributed by the contractor or its subcontractor or their employees, officers or agents; and
• claims by workmen employed by the contractor.

The contractor seeks to be indemnified by the employer in respect of any liability for loss or damage caused by fire, explosion or any other perils which are not caused by any act or failure of the contractor.

Construction contracts contain provisions requiring the contractors to furnish various bank guarantees for the amounts specified in the contracts in favour of the employers. A bank guarantee is considered as a separate contract between the relevant bank and the employer, and independent from the construction contract. The bank guarantees include:

• performance bank guarantee for the due performance of the contract;
• advance payment guarantee to secure the advance payment made by the employer;
• payment bank guarantees to cover various payments made in relation to mobilisation of equipment, supply of materials, etc;
• corporate bank guarantee provided by the contractor or its shareholders; and
• retention bank guarantee to cover the defect liability period.   

Construction contracts set out the dates for release of the bank guarantees.

The insurances that are typically taken out in construction contracts include:

• cargo insurance during transport policy covering loss or damage occurring while in transit from the destination to the construction site;
• all risk insurance policy covering physical loss or damage to the construction work including all materials and goods on site occurring prior to completion of the work and during the defect liability period;
• third-party liability insurance policy covering vehicles used by the contractor in connection with the execution of the contract;
• workers’ compensation insurance policy covering any death or personal injury of the workmen appointed by the contractor; and
• employer’s liability insurance policy covering the liability towards the employees engaged in the construction work.

Construction contracts usually contain provisions entitling a party to terminate the contract upon insolvency of the other party. Usually, these provisions are the same for both the employer and the contractor.

Since the contractor bears the entire responsibility to perform the contract, the risks associated with the construction contract are borne by the contractor. However, the employer bears the risk in relation to any defect in the title of the project land or obtaining necessary government authorisations regarding the construction of the project. These risks are typically not shared.   

Construction contracts contain provisions regarding the appointment of personnel by the employer and the contractor, the total number of personnel to be appointed, the designation and responsibilities of the personnel, reporting requirements, etc. Usually, the employer appoints the project manager or project director and engages personnel to supervise and certify the construction works and tests. The contractor appoints the contractor’s representative, construction manager and other personnel to complete the construction works.

It is common for construction contracts to contain provisions allowing the contractor to appoint subcontractors to carry out works or services specified in the contract. Construction contracts may contain a list of pre-agreed subcontractors, and in the absence of a pre-agreed list, allow the contractor to propose names of the subcontractors to be approved by the employer.     

Construction contracts usually contain a clause conferring on the employer intellectual property rights created in relation to the construction work. 

The Contract Act 1872 entitles the non-defaulting party to claim from the defaulting party compensation for any loss or damage caused by the breach of contract which naturally arises from the breach. Where a sum is named in the contract as the amount to be paid in the case of breach of contract, for instance, liquidated damages, the non-defaulting party can recover a reasonable compensation not exceeding the amount so named. A party may also claim other remedies, such as indemnity, under the contract.

In case of breach of contract, the non-defaulting party may terminate the contract for breach and claim compensation or may continue with the contract reserving its right to claim compensation under the law and the contract. 

It is common practice in Bangladesh to contractually limit the remedies available to a party. For instance, in case of total liability and liquidated damages, the parties set out in the contract the agreed upper limit of the total liability and liquidated damages. However, there are certain exclusions in respect of which limitation of liability is not applicable, such as fraud, negligence and wilful misconduct. 

Sole remedy clauses are not typically used in Bangladesh.

Section 73 of the Contract Act 1872 excludes certain types of damages, such as damages for remote and indirect loss or damage.

It is common that parties contractually exclude or limit their liability in respect of certain damages, for instance, indirect or consequential damages, loss of profit, loss of use, etc.

Retention and suspension rights are contractually included in construction contracts in Bangladesh. A suspension clause allows the employer to request the contractor by notice to suspend performance of any or all of its obligations. In the notice, the employer states the reason for suspension. A suspension clause also entitles the contractor to suspend performance of the contract on the grounds provided for in the contract, which typically include delay in payment by the employer, failure to approve any invoice or supporting document without just cause, and occurrence of any force majeure event. 

Construction contracts provide for circumstances for termination. The circumstances usually include termination for employer’s convenience, termination for breach of contract by either party, termination for insolvency of either party, termination for force majeure, etc. The termination clause sets out the consequences of termination and consequences depend on the circumstance of the termination. General consequences include:

• the contractor ceases all further works, terminates subcontracts, removes contractor’s equipment and personnel from the site, delivers the completed part of the work;
• the employer pays the contract price attributable to the completed part of the work, costs reasonably incurred in removing the equipment from the site and the amount payable by the contractor to any subcontractor; and
• the employer may enter the site, expel the contractor if the contractor does not willingly leave the site, complete the outstanding work by engaging a third party and recover any excess sum from the defaulting contractor.

Following termination of the contract, either party may invoke the dispute resolution mechanism, such as arbitration, contained in the contract if it considers that the termination is unlawful.

Construction contracts usually contain a dispute resolution clause providing for the agreed forum for the resolution of disputes. In the absence of a dispute resolution clause, Bangladesh courts will have jurisdiction over the disputes arising out of the contract. The Bangladesh court within the local limit of whose jurisdiction the office of the defaulting party is situated, or the cause of action wholly or partly arises, or where the construction project is situated, will have jurisdiction.

By a dispute resolution clause, the parties can confer on Bangladesh or foreign courts or on an arbitration tribunal exclusive or non-exclusive jurisdiction over their disputes.

Parties’ choice of a foreign court would not oust Bangladesh courts’ jurisdiction automatically, if the cause of action wholly or partly arises in Bangladesh. If a party files proceedings in Bangladesh disregarding the jurisdiction clause in favour of a foreign court, and if any anti-suit injunction is issued by the foreign court, the Bangladesh courts would have discretion to either give effect to such injunction and decline jurisdiction in favour of the foreign court, or proceed with the matter despite the anti-suit injunction. Thus, jurisdiction clauses in favour of foreign courts are not automatically enforceable.

If parties include an arbitration clause in the contract conferring jurisdiction on an arbitration tribunal, the jurisdiction of the Bangladesh courts can be excluded. An arbitration clause usually provides for the arbitration rules applicable to the arbitration, the seat of the arbitration, the composition of the arbitration tribunal, the language applicable to the arbitration, etc.

Arbitration is the most common alternative mechanism of dispute resolution in Bangladesh. Arbitration is regulated by the Arbitration Act 2001.