The Legal Framework of an Infrastructure Project
An infrastructure project — a road, a network, a terminal or an industrial complex — is legally a multi-party relationship at whose center stands the contract of work: under it the contractor undertakes to perform the work contemplated by the contract, and the customer must pay the contractor the agreed remuneration. Where the work involves the making of some product and the contractor makes it from materials purchased by itself, it transfers to the customer ownership of the product made.
For large projects the rules on remuneration are decisive: remuneration is deemed agreed even tacitly, where according to the circumstances the work is to be expected only against remuneration; where the amount is not agreed, where a tariff exists the tariff rate is deemed agreed, and where no tariffs exist — the ordinary remuneration. The preparation of a cost estimate is not separately compensated unless otherwise agreed.
Managing Overruns at Scale
In infrastructure projects the management of cost increases depends on the rules: where the contractor significantly exceeds the approximate cost estimate, it may claim only the agreed remuneration, except where prior contemplation of the excess expenditure was impossible. Of an unforeseeable increase the contractor must notify the customer without delay, and where the customer terminates the contract because of the increase, it will compensate the work performed according to the approximate cost estimate. The budget of a large project is assembled precisely around these rules: what enters the remuneration, what remains unforeseeable, and who carries the risk of the increase.
The Mortgage and the Duty to Warn
An instrument for protecting the contractor’s claims is the mortgage: where the object of the contract is a building or individual parts of it, the contractor may demand, for its claims arising from the contract, a mortgage over the plot of construction land. In structuring large projects this instrument often becomes the mainstay of the financing relationship — and its correct declaration requires advance preparation.
The central norm of risk management in infrastructure projects is the contractor’s duty to warn: the contractor must timely warn the customer that the material received from the customer is of poor quality and unusable; that if the customer’s instruction is followed, the work will be unstable or unusable; and that there exists another circumstance independent of the contractor that threatens the strength and fitness of the work. Where the customer, despite timely warning, does not within the appropriate period replace the unusable or poor-quality material, does not change the instruction given, or does not eliminate the other circumstance, the contractor has the right to renounce the contract and demand compensation of the damage caused thereby. In practice this means that every risk of the project is fixed by a written warning, and the distribution of responsibility becomes document-based.
Consortium and Joint Activity
In large projects several participants often act jointly. The legal form of this is the contract of joint activity — partnership: under it two or several persons undertake to act jointly to achieve common economic or other purposes by means defined in the contract, without creating a legal person. This is a flexible construction: it unites the participants around a common purpose without creating a new company — and precisely this must be reflected in the project documentation.
Documentation and Project Support
The life of an infrastructure project is measured in documents. The project documentation encompasses the contractual architecture and its annexes, the payment schedule, the acts of performance, the register of warnings and the correspondence log. The practical rule is simple: every significant decision is fixed in writing, every warning is handed over with confirmation, and every payment is linked to the performed stage. The change-management procedure — who declares, who agrees and how it is recorded — is an integral part of the project documentation from the first day.
Frequently Asked Questions
Below we answer the questions most frequently raised about the legal support of infrastructure projects.
What contract stands at the center of an infrastructure project?
The contract of work: the contractor performs the contemplated work and the customer pays the agreed remuneration; where the contractor purchases the materials, ownership of the product passes to the customer.
How does the law protect the contractor’s financial interests?
In the case of a building or its parts, the contractor may demand a mortgage over the plot of construction land for its claims.
When must the contractor warn the customer?
Of poor-quality material, of the dangerous consequence of an instruction, or of another circumstance threatening the work — in a timely manner; if the warning is ignored, the contractor may renounce the contract and claim damages.
How are several participants united?
By a contract of joint activity — partnership: two or several persons act jointly for a common purpose, without creating a legal person.
Who bears a cost-estimate overrun?
In a significant overrun the contractor claims only the agreed remuneration, apart from an unforeseeable increase; the customer is notified of such an increase without delay.
How We Help on Legal.ge
Our service means legal support of the project: selecting the contractual architecture, stipulating the structure of remuneration and payments, formulating the rules for managing overruns, preparing protective instruments — including the mortgage — documenting warnings, and formalizing multi-party participation. The Legal.ge team supports infrastructure projects through their full cycle. Contact us — the legal frame of the project must be built from the first day.