An In-House Counsel’s Guide to Preparing an Engineering Firm for a Successful Foreign Project

In-house counsel for engineering firms that want to do more international work, but need to improve their international awareness may use this article as a general guide. The information contained in this article should not be construed as an exhaustive list for doing work in any foreign country.  You must still conduct your own research, hire local counsel and other advisors, and address issues that are specific to the country, the project, and your firm.

A. Trade Restrictions

1. U.S. Sanctions

One of the first questions in-house counsel should ask when their firm is contemplating a foreign project is whether U.S. companies are permitted to transact business in the country or with a particular party.  The Office of Foreign Assets Control lists countries with which U.S. firms are strictly prohibited to conduct business (the “OFAC List”).  In addition, U.S. firms must avoid any transaction with a country or person on any of the lists of prohibited parties maintained by the Commerce, State, or Treasury Departments of the U.S. Government.  Your firm should have procedures for checking such lists before committing to a foreign project opportunity.  Checks should also include any potential subconsultants or other vendors your firm intends to use on a foreign project.

2. Export Controls

The applicable Export Control Laws are the International Trade in Arms Regulations and Export Administration Regulation, and, if your firm provides engineering services to the nuclear industry, 10 CFR Part 810 promulgated by the Department of Energy.  The purpose of these laws is to protect national security.  Violations can result in fines and being barred from doing future work for the U.S. Government.

It is critical to understand the type of information your firm’s engineers will receive from your firm’s client and other project participants, and the information they will be expected to generate and transmit during the course of the project.  The U.S. restricts the export of certain items, technology, and information to Foreign Nationals (as defined under the law) without prior authorization from the U.S. Government.  Granting access to “controlled” information to a Foreign National within the U.S., including a firm’s Foreign National employees, is a deemed export.  Keep in mind that traveling with certain information on laptops, or bringing certain equipment abroad without prior authorization can also be an export and violate U.S. Export Control Laws.

To the extent applicable, your firm’s contract with its client and any subconsultants should address compliance with Export Control Laws.  Your firm should also provide awareness training to employees and other project participants within the firm’s control.

3. U.S. Foreign Corrupt Practices Act (FCPA) and Foreign Anti-Bribery Laws

The FCPA prohibits bribery of a foreign official and, if violated, can result in fines and imprisonment for companies and individuals.  One of the keys to controlling the potential for corruption on a project is being aware of the corruption climate of a foreign country.  The website of the organization Transparency International is a good resource for this information.

As with the Export Control Laws, another key to controlling the potential for corruption on a project is obtaining commitments in writing from clients and subconsultants that they will abide by applicable anti-corruption laws.  It is important to keep in mind that other countries beyond the U.S. have anti-bribery laws and some of these laws are distinctly different than the FCPA.

Training staff to identify “red flags,” which are indicators that bribery among project team members is occurring or there is a risk that it will or could occur, is also key to controlling the potential for corruption on a project.  As with the trade restrictions discussed above, it is advisable that your firm issue guidelines to employees and implement procedures to ensure compliance with anti-corruption laws.

B. Registration

1. Business Registration

Some countries require that a foreign firm register to transact business in the foreign country.  Canada has a similar business registration method to the U.S., whereby firms must obtain an extra-provincial license that is similar to a certificate of authorization issued by a Secretary of State office in the states.  Some countries such as New Zealand require that a firm be listed on a published Register as a foreign firm conducting business within the country.

2. Professional Registration

From my experience, rules on requirements for professional registration in the U.S. and Canada are much broader than those of other countries.  In the U.S. and Canada, holding oneself out as a professional engineer requires registration in the jurisdiction where the representation is made.  This is not to say that registration is not an important issue to consider when your firm is providing services outside the U.S. or Canada.  Registration rules can still vary tremendously from country to country and to interpret them often requires consultation with local counsel.

Your firm’s role on a project will often dictate whether it needs local registration.  Getting a local engineer to take responsibility for a design is one option to get around registration requirements in some countries, but is not appropriate everywhere.  Some countries require the individual and not the firm to be registered.  Other countries require professional registration for certain types of services or, as in the case of Vietnam, an engineer’s mere presence on the project site. To be the engineer of record on a project, many countries in the Middle East require formation of a separate local entity majority owned by a local firm.

C. Professional Liability Insurance

Contracts for international projects sometimes require engineering firms to purchase local professional liability insurance coverage.  If you have worldwide professional liability coverage, this entails a local insurance company fronting the existing professional liability policy.  Pay close attention if your firm is working in the Middle East, as Decennial Liability exposure can be significant.  Depending on your services, you should seek this coverage, as well as coverage for other statutory liability imposed on design professionals in countries where a Civil Code legal system exists.

D. Protection of Intellectual Property and Confidential Information

The more employees travel internationally with laptops and handheld devices, the more firms risk loss or theft of company intellectual property or proprietary information, client confidential information, or employee personal information.  This information is extremely valuable to firms, foreign competitors, and criminals, so you should exercise due care to protect it.  Your information technology department should be able to encrypt laptops or provide clean laptops for international business travel purposes.

E. Contracts

A contract for a foreign project can be a trap for the unwary.  The following contract clauses are important to include in a foreign contract and require careful drafting.  

1. Governing Law & Language

If the governing law of the contract is that of the foreign country, be aware of the implications.  Seek advice from local counsel so that you know how the contract will be interpreted, especially if you want to ensure that certain provisions such as indemnification and limitations of liability that you may have included in the agreement are enforceable.

2. Dispute Resolution

Any dispute under the contract will be subject to the governing law of the contract.  Foreign litigation is very complex.  It can take years to resolve, is quite costly, and strong local biases can exist.  Enforcing a judgment for nonpayment of services can be impossible in some jurisdictions.  In my experience, International Chamber of Commerce Arbitration can be a good middle ground as a dispute resolution mechanism in a foreign contract.

3. Force Majeure

Anything can happen on a project.  It is important that your firm is protected by an appropriate force majeure clause so that if conditions prevent your firm from delivering its services on schedule, or significantly increase your firm’s costs associated with its services, your firm will be excused.  Under such circumstances, your firm will want to renegotiate its schedule and fees.  So long as the force majeure clause reasonably contemplates the situation for which you are seeking excuse from performance, it should be upheld.  

F. Conclusion

If you are not already established in a foreign country and you are going after foreign work as opportunities arise, the most important advice I can provide on how to turn an international project opportunity into a successful project is to know your client, the hidden costs, administrative burdens, and key compliance issues in doing international work. Taking on foreign work without any awareness of the complexities entailed can expose a firm to great risk.  However, avoiding foreign work altogether can cause a firm to miss out on opportunities to work on unique technical challenges and to enrich staff.  When done right, in-house counsel can help position a firm to be a successful participant in the ever-expanding global practice of engineering.