At Josh and Mak International, we understand the attractiveness of Pakistan as a jurisdiction for bidding on procurement contracts, particularly for our clients operating internationally with corporate seats in key EU/US destinations. Many of our clients choose to enter into consortiums with local companies to participate in these contracts. However, we often receive inquiries regarding the liability of consortium members, and it is important to address these concerns.
Foreign companies engaging in consortium arrangements with local partners need to recognize that they are consortium members and not sub-contractors. It is crucial to understand the significance of their contribution, as each consortium member’s presence contributes to the winning bid. In the unfortunate event of default, defective performance, or non-performance, the entire contract may be jeopardized, regardless of which consortium member is at fault. Therefore, excluding liability in such circumstances may not be feasible or advisable.
While it may be challenging to exclude liability entirely, foreign companies can consider including a clear clause that excludes liability for matters beyond their control or knowledge, or those outside their technical domain. However, constructing such a clause requires careful consideration.
To navigate the complexities of consortium liability in Pakistan, foreign companies and their legal strategists should take note of the following key points:
- Pakistan’s Public Procurement Rules and the law governing consortium formation expect joint and several liability for consortium members in public contracts. This means that in case of a dispute, there is a risk that the exclusion clause may be overridden by the court or the party being sued by the government may sue other consortium members for damages caused by non-performance.
- Tender documents often define “supplier” as all companies forming the winning consortium, indicating automatic joint and several liabilities.
- Precedent in procurement disputes with governments has shown that consortium members have been sued jointly and severally.
- While freedom of contracting allows for flexibility, practical implementation of exclusion clauses in public contract disputes can be challenging, particularly when the government is the contractor. Government contracts often emphasize joint and several liability, considering factors such as national interest and security.
Considering these points, relying solely on an exclusion clause during a dispute may present challenges. It is crucial to understand that consortium agreements can be overridden by the final contract between the consortium and the government. Additionally, if a consortium member defaults or fails to perform, the government may sue the responsible party as per the consortium agreement, and other consortium members may also seek compensation from the defaulting party.
To address some specific queries we get in emails often ;
A) Under Pakistani law, it is theoretically possible for one party of the consortium to be solely responsible and liable towards the contractor, while the other party is not obligated to deliver the tendered products and services. However, practically speaking, consortium members are generally considered jointly and severally liable.
B) If one party seeks exclusion of liability, it would be necessary to negotiate this with the procuring state agency or the tendering authority.
C) While it is possible to include an exclusion of liability clause in the consortium’s bid/offer, it is crucial to carefully define the scope of the exclusion and its reasonable application. However, relying solely on such a clause to fully protect a consortium member may be risky, as other consortium members or the government may still hold them accountable for non-performance.
This legal note aims to guide foreign firms through the PEC registration or renewal process, ensuring compliance with the regulatory requirements in Pakistan
For expert advice and guidance on navigating consortium arrangements and liability in procurement contracts, please contact Josh and Mak International. Our experienced legal team can provide tailored solutions to protect your interests and ensure compliance with Pakistani laws and regulations.
Landline : +92-51-8442922
Regarding the engagement of foreign consulting engineers in Pakistan, the Pakistan Engineering Council (Conduct and Practice of Consulting Engineers) Bye-laws,1986 stipulate the following:
(1) Registration Requirement: Foreign firms of consulting engineers must register themselves as consulting engineers for specific projects. This is particularly relevant for projects that require expertise and specialized knowledge not available with Pakistani consulting engineers.
(2) Collaboration with Pakistani Firms: These foreign firms are required to form an association or joint venture with a Pakistani consulting engineer. In this association or joint venture, the services rendered by the foreign firm must be limited to their unique expertise and knowledge that is not available with any Pakistani consulting engineer.
(3) Exceptions for Short Assignments: The clause does not apply to foreign consulting engineers who visit Pakistan under transfer of technology agreements for short assignments, provided that prior approval from the Council for the specified project is obtained by the employer concerned
(4) These provisions aim to regulate the involvement of foreign engineering consultancies in Pakistan, ensuring that they complement rather than replace local expertise, and are engaged primarily for their specialized skills or knowledge not available locally.