When building in a foreign country, it’s important to realize that in each country, projects are guided by unique circumstances. The issues you run into in India are different than in Singapore, for example.
“One thing that is constant, however, is relationship is king,” says Alex Ertis, senior project manager at Alfa Tech. “You have to be comfortable with your local representative. You can’t be cavalier about contracts. If you think they carry the same weight as they do in the U.S., you’re wrong.”
Using an in-country director to deliver projects aids with the contract and helps shed risk through the project director to the in-country team, he says.
Smart Business spoke with Ertis about what any U.S. business undertaking a construction project in another country needs to know.
What are some critical steps to take before breaking ground?
As with any other project, the first critical step is to understand and define the scope. Then work with the project manager to build the project team. The availability of known players familiar with the foreign country may well dictate the project delivery method — design-build versus design-bid-build for example.
The critical steps, however, are wildly different depending on the scope of the project. Simple tenant improvements require detailed due diligence on the building to ensure it has the proper infrastructure. For ground-up construction, due diligence is more focused on government regulation and entitlement.
Any project has risks that can be broken down into budget, schedule, team and scope. Some construction specialists place country risk on this list, but country risk changes the risk dynamic for all the aspects of the job. Establishing strong communication and reporting protocols during early planning and putting in place a strong in-country advocate that is trusted by the foreign team is critical to translate and mitigate these risks.
What is the difference between building in the U.S. and another country?
Depending on the country, building codes can sometimes be surprisingly similar and other times vastly different. The standard by which the quality of construction is determined also can be quite different.
The speed with which projects get completed in fast-growing economies is alarming. You either need to be comfortable allowing minor changes without formal design review and approval, or you need an extremely clean set of plans and a very strong and continual presence reinforcing that, on the job, the design team is the genesis and end-all for any design changes. Both approaches have their risks, but you should make a conscious decision or it will default to changes in an ad-hoc manner on site with little or no formal documentation.
What are some considerations a U.S. company needs to understand when building abroad?
Many U.S. clients come into a foreign market and try to execute just like they would in the United States. For legal, insurance and other issues, this can cause quite a bit of delay. Many foreign markets are not as developed from a legal framework standpoint and are frankly far less litigious than the U.S. This changes the insurance and legal aspect of a contract quite a bit.
Quality and substitutions also need to be closely watched. Again, having an in-country advocate to maintain quality is key. Many teams struggle with the submittal process and treat construction specifications as suggestions. For high-spec builds, the contractor must submit what it will be installing and physically inspect the material coming in to ensure it is the right fit.
Should local or U.S. builders actually construct the building?
U.S. builders that say they can build overseas without a local partner are kidding themselves and their clients. The immigration implications alone are overwhelming. You absolutely have to have a local team.
The key from an economic standpoint is to try to get transparency on actual costs. You shouldn’t be paying U.S. union rates for a day laborer, but many multinational contractors will bill this way unless you push them.
Another concern is ‘right-sizing’ your contractor. There may be comfort in using an international name, but be prepared to pay European or U.S. prices for it. If there are similar projects completed in the marketplace, there will be small- to medium-sized contractors that can deliver at a fraction of the cost. If you engage a big international firm, it will just hire those same people as subs to do the work.
How do you ensure you’re abiding by the laws and regulations of the construction process?
Getting a qualified local person to map out the entire process is useful. However, because the local team is familiar with the process and the vernacular of permitting, there may be a lot of assumptions about different roles and responsibilities played by the owner, contractor and architect. There needs to be a pre-construction effort to clearly and explicitly define these roles and responsibilities. Without this exercise, something will be missed, and time, budget and quality likely will be affected.
What issues might arise when paying foreign contractors?
Dealing with foreign taxes is a great example of why maintaining good relationships with foreign team members cannot be overemphasized. Additionally, with respect to the exchange rate, project managers may try to make it easier for U.S. clients to deal with construction abroad by absorbing some of the exchange rate risk. For instance, in some cases, current exchange rates are included in contract documentation and some level of negative change in those rates will be accepted. That provides a level of comfort, if not certainty, to some clients. Other clients are quite comfortable dealing with the ups and downs of foreign currencies and gladly strike deals in U.S. dollars.
Alex Ertis is a senior project manager at Alfa Tech. Reach him at (925) 786-1511 or firstname.lastname@example.org.
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