The Planning and Execution of an International Project:
A Checklist of Actions

by

Charles P. Woodward, PE CCE
Lead Estimator, Power Projects Technologies Group
J. A. Jones Construction Co.
J. A. Jones Drive
Charlotte, NC 28287, USA

and

Dr. Kenneth K. Humphreys, PE CCE
Consulting Engineer
1168 Hidden Lake Drive
Granite Falls, NC 28630, USA


Introduction

The planning and execution of an international project requires many special considerations not usually encountered when planning within your own country. There are the obvious differences such as wage rates, productivity, duties, and taxes, but many more differences may be overlooked. To properly prepare an international estimate and to avoid unpleasant surprises requires that you conduct research on construction practices in the target country. This paper presents a checklist of many of the differences that need to be considered and recommended actions which should be taken in order to insure development of a reliable and accurate estimate.

Project Elements Checklist

® Project Design

1. What local codes and practices apply to the project design? For example, do you construct prefabricated steel buildings or concrete block buildings?

2. What weather and climatic conditions are likely to prevail at the project site? How do these differ from your home country? Is the project location subject to temperature extremes, severe rainfall, flooding, etc.?

3. Must consideration be given to any special geological conditions such as earthquake zones, unusual soil conditions, etc?

® Bulk Materials

1. What materials are available locally?

2. Is it cheaper to buy locally or import? Before the devaluation of the Mexican peso, there were situations when it was actually less expensive to import reinforcing steel into Mexico than to purchase it there. In some situations there may be a VAT on local materials while the project is exempt from duties. This may make it cheaper to import than buy locally.

3. Should you use different practices? For instance, if construction labor costs are very low, it may be more economical to fabricate rebar at the site rather than at the factory. Similarly, in some areas hand mixing and placing of concrete may be more economical that using ready-mixed concrete.

4. Are locally available materials of suitable quality? For example, in some sandy desert areas local sand may not be suitable for use in cement and concrete. Sand may have to be imported. It may sound like sending coal to Newcastle but it isn't - it can be a major concern.

® Engineered (Process) Equipment

1. While equipment pricing tends to be international in nature, there are places in the world that are more competitive than others. If possible, obtain quotes for your specific location rather than using recent pricing in other geographic areas. If information from other areas must be used or if importing of equipment is required, be sure to factor in shipping costs and duties from each potential supplier location.

2. As indicated above, be sure to evaluate the total cost in selecting your equipment supplier. In addition to the base price, you should consider shipping costs, duties and exchange rates.

3. Be sure to evaluate your spare parts requirements. Due to long delivery times for certain components, particularly those which must be imported, you may want to stock more spares.

® Construction Labor

1. Is there skilled labor available?

2. What is the local productivity? While there are several publications that quote average productivity compared to a base location such as the Houston Gulf Coast Area of the United States, wide variances may exist in actual productivity in any given location. For example, in Saudi Arabia, the average labor productivity factor is about 1.6 versus the US but may vary from being similar to that of the US to over 3.0 depending upon project conditions and the mix of local and expatriate labor.

3. Will you be required to provide housing and services, such as medical facilities, as a part of your construction program?

4. How do you obtain local labor? You may be required to pay fees to a labor broker for staffing your project.

5. What are local payroll taxes?

6. Should you import construction labor?

® Construction Equipment

1. Is construction equipment available locally?

2. If you need to bring in equipment, will you be required to pay duties?

3. What are the rules for removing equipment after the project?

4. Are the local construction forces trained in the use of the equipment?

® Construction Management Staffing

1. What positions will be filled with expatriates versus local hires?

2. What living arrangements will be provided (camp versus local housing) and what is the cost? Will food be a per diem expense or will workers be fed in a galley?

3. What special services, such as housekeepers, drivers, etc, are required?

® Schedule

1. How long will project mobilization take? Project mobilization may take longer than normal if you are setting up a base camp, bringing in construction equipment, etc.

2. What is the schedule effect of equipment delivery time? Allow for additional delivery time for imported equipment to cover ocean freight, offloading and customs clearance and possible delivery to the site.

3. Will weather introduce any special schedule considerations? Be aware of local weather conditions, such as monsoon periods in the tropics, that may delay the schedule .

4. How will local productivity, work practices, culture, religion, and workforce level of education affect schedules?

® Local Infrastructure Requirements

1. Are local water, sewer, electricity and other services available?

2. Are highways and rail service available? Are they adequate or do they require upgrades?

3. Are there relocation requirements for people living on the site? What are these relocation requirements?

4. Can the local port handle the cargo? Is the depth adequate? Is the dock adequate? Can the cranes handle your loads?

® Material & Equipment Delivery (Shipping & Customs)

1. Should shipments be consolidated? Consolidation of shipments can save significant shipping cost but can impact your schedule.

2. What fees are required for customs clearance? They can be significant. As an example, according to Richardsonís International Construction Factors, the following is a list of duties and fees that may be charged for imports into Brazil (as of April 15, 1995):

Duties 0-40%; Average 14%
Merchant Marine Renewal Tax 25% of freight charge
Syndicate Fee 2.2% of c.i.f.*
Brokerage fee 1% of c.i.f.
Warehouse Tax 1% of import duty
Fee for Handling Charges $20-$100
Administration Commission $50
Import License Fee $100
Additional Port Tax 2% of c.i.f.

*(price of goods plus packing, freight, insurance and seller's commission)

As can be seen from this list, the costs of importing can be very significant, but exceptions are often available and need to be explored. India, for example, levies duties of 40 to 100 percent or more yet has granted concessional rates as low as 20 percent for recent power projects.

3. What is the cost of transit insurance?

4. How will you get the equipment from the port to the site (rail, highway, barge)? If you are moving the equipment by highway, can the roads and bridges handle the loads or do they need reinforcement or bypass? Is there special equipment available to handle the heavy loads (off the ship and on the highway)?

5. Do freighter schedules meet your project schedule?

6. What security is required to ensure that your equipment arrives at the site?

7. Do you require special shipping due to project financing?

® Progress Payments (Cash Flow)

1. What up front payments will be required? Contractors in developing nations may be cash poor and may require a larger than normal up front payment to help with project operating capital.

2. If you are being paid by a foreign government, what kind of processing time can you assume for invoice payments?

3. What currency will you be paid in? If you are paid in local currency there will be a conversion fee and, on occasion, convertibility may not be available.

4. If payment is in local currency, what risk exists for significant fluctuation in exchange rates or for changes in government policy which might affect exchange rates? Consider the Asian "paper tiger" countries (Thailand, Phillippines, Malaysia, and Indonesia), for example, which suffered losses of 30 percent or more in the value of their currencies in three months during 1997. All four currencies had a long history of stability before this sudden decline.

5. What is the schedule of payments to local workers: daily, weekly, monthly?

® Local Taxes

1. What local business taxes must you pay for working in the country?

2. What local sales, property, VAT or other taxes will be assessed against your project?

® Insurance

1. Does the local country allow for private insurance? If not, you may need to contract with government agencies in the host country for insurance rather than with your regular carrier.

2. What special insurance is required for international freight losses?

® Project Finance

1. Does project financing require that a certain percentage of the project be purchased in certain countries?

® Legal Recourse

1. What recourse do you have if your customer in the country defaults on the contract through cancellation, non-payment, etc?

2. What legal recourse do you have for non-performance of local subcontractors?

® Social System

1. What local holidays are observed?

2. Is family housing required at the job site?

3. How do local religious customs impact the work schedule? For example, are prayer breaks customary?

HOW DO YOU BEGIN?

If you have never tackled a foreign project before, the above list is certainly enough to discourage anyone from attempting it. Fortunately, there is a good support infrastructure to help you get started. The following are some recommendations to help you prepare for a foreign venture:

® Most major industrial nations have the equivalent of a Department of Commerce. These government agencies have staffs that are well versed in helping you develop a plan and obtain the information you need for a successful project. You should begin your project by contacting one of these agencies for assistance.

® You should consider a local partner or consultant in the host country. This person or company should have the ability to help you with the language, identify local rules and regulations that will apply to the project, and help you through the processes.

® For local construction practices, pricing, labor, etc. you will need help from someone skilled in local construction practices: a design firm, local contractor or just a special consultant. Discuss with this person the project logistics of local contractors vs. self perform, construction equipment, site housing requirements, local versus imported materials and labor, schedule, etc. to develop a project plan. To help locate this person or firm, you may wish to start with the International Cost Engineering Council (ICEC). ICEC has member societies doing business in much of the world and you may be able to obtain recommendations or assistance from the ICEC members. You can contact ICEC on the World Wide Web at http://www.ICostE.org or through the cost engineering, quantity surveying, or project management society in your country.

Once you have put together your basic project plan, you will need to begin gathering the specific cost and schedule information required for the project. Here are some suggestions to help you compile the information:

® For specific local pricing information, the best approach is to obtain bids from local contractors. Put together a bill of quantities and work through your local construction consultant to obtain the bids.

® If you are working on a technology project in a developing country, do not assume that the contractors you are working with understand the project concepts and how they go together. You may get some very strange results if you just supply a list of quantities and ask for unit pricing. Educating your project subcontractors can provide much better results. Before you visit your subcontractors, provide them with the quantity list and give them some time to review it. When you visit, take photographs of similar work, layouts and elevations of the proposed project, and a simple project schedule. If you have time lapse film of the construction of a similar facility, it will be of great value in educating the subcontractors. When you visit the subcontractors, take time to sit with them and discuss the quantity list to make sure that they understand your terminology. Remember that an estimator who does not understand a project will be more conservative and will include greater contingencies in the estimate than may be justified.

® For equipment pricing, be sure to remember to consider any specific country sourcing due to finance requirements. Look to multiple country sources for bids. Many times the equipment vendors can arrange special financing or in-country manufacturing to avoid duties or can provide other assistance to the project. Be specific that you will be evaluating the bids on a completed project cost basis and not merely on bid price.

® Select a freight forwarding company early in the planning stage to help with the schedule logistics, freight costs and duty requirements for the project. These companies generally earn their fees, as travel consultants do, by commissions they receive from the freight lines. You should be able to find a company that will work with you on that basis. You should select a company that has offices in the countries of origin for your equipment and in the country where you will be working. The local agents will be very valuable with helping you through the customs and local transportation requirements.

® There are several international consulting companies that provide information about taxes and business requirements around the world. Work through your regular accounting firm to identify a company to work with. You will need to obtain reports on local taxes and business issues for your project.

® You will need to obtain an international attorney to help prepare the contracts, business plans and other legal documents for you to do business in your host country. It is important to find an attorney who is experienced in international law and preferably one who has done business in your host country before.

International construction carries with it many risks, but as economies become more global, the reward of contracting internationally will become greater. The above list of activities and recommendations is far from complete, but it does cover most of the more significant items of concern. If you begin working with the above recommendations, you will have the tools needed to make you a successful international contractor.



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