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
This note outlines the regulatory framework governing foreign construction and operation firms in Pakistan, particularly focusing on their participation in local projects and collaboration with Pakistani entities.
Definition: “Foreign constructor or foreign operator” refers to an entity that is either:
- Wholly owned by foreign nationals, holding at least 51% of the shares.
- Incorporated in Pakistan with the Securities and Exchange Commission of Pakistan (SECP), with foreign ownership comprising at least 51% of the shares and at least 70% of the engineering staff being Pakistani nationals.
Operational Guidelines:
- Eligibility for Collaboration: Foreign constructors or operators are permitted to collaborate with Pakistani counterparts, even in cases where the required specialized technology is available within Pakistan.
- Licensing Process:
- Annual Licensing: Foreign constructors or operators will be issued licenses on an annual basis, replacing the earlier practice of issuing project-specific licenses.
- License Renewal: These licenses are subject to renewal upon expiry.
- Restriction on Individual Participation: Foreign firms are not allowed to participate in bidding processes independently.
- Mandatory Joint Venture: To bid for projects, foreign firms must form a joint venture with a Pakistani firm that falls under the appropriate category.
- Submission of Joint Venture Details: Details of the joint venture must be submitted to the employer prior to participating in any bidding process.
- Experience and Recognition:
- Experience Sharing: Upon entering into a joint venture, all partners will benefit from the collective experience gained from the project.
- Recognition of Experience: In future projects, the experience acquired will be acknowledged and considered, irrespective of the shareholding percentages of the joint venture partners.
This framework is designed to encourage foreign investment and expertise in the Pakistani construction and operation sectors, while ensuring significant local participation and benefits. It also aims to foster a collaborative environment between local and foreign firms, contributing to the growth and development of these sectors in Pakistan.
Client Information Article: Documentation for Registration/Renewal of Foreign Firms with the Pakistan Engineering Council (PEC)
Foreign firms intending to operate in Pakistan in the engineering sector must adhere to specific registration or renewal guidelines set by the Pakistan Engineering Council (PEC). This article provides a comprehensive list of the required documents and procedures.
Key Requirements:
- Collaboration with Pakistani Firms: Foreign firms cannot bid individually; they must form a joint venture with a Pakistani firm of an appropriate category and submit details to the employer before bidding.
Documentation Checklist:
- Fee Payment Voucher:
- Payment can be made through specific MCB or HBL Bank accounts.
- Foreign Currency account option is in process.
- Demand Drafts or Pay Orders are not acceptable.
- Company Brochure and Work Verification:
- Includes a verified brochure and completed works by the Pakistani Embassy in the relevant country.
- Financial Statement: A comprehensive statement of the company’s financial status.
- SECP Documents:
- Certificate of Incorporation, Articles of Association, Memorandum of Association, Form 29, Form A (if required).
- Identification Documents:
- Passports of Owner/Shareholders/CEO.
- Authority Letter:
- For the authorized person in Pakistan to deal with PEC.
- Engineer Employment Documents:
- Pakistani Engineers: Employment Undertaking, CNIC/Passport, PEC Registration Card, CV, NTN (if applicable).
- Foreign Engineers: Employment Undertaking, Passport, Valid Temporary Licenses.
- Physical Appearance:
- Mandatory for local/foreign engineers.
- Organizational Chart:
- Signed by the CEO/Shareholder/Partner, showing the chain of command.
Additional Information:
- Firm and Representative Details:
- Name and country of origin of the foreign firm.
- Details of the authorized/nominated person in Pakistan.
- Engineer Details:
- List of foreign and Pakistani engineers employed, including their qualifications and employment details.
- Specialization Code: Indicate the required code of specialization.
- Undertaking:
- A declaration of the accuracy and truthfulness of the provided information.
Financial Requirements and Licenses:
- Different categories of constructors and operators have specified financial limits and requirements.
- A provisional license may be issued initially, which requires fulfilling certain conditions for a standard license.
- Penalties for non-compliance include fees or license cancellation.
Compliance with PEC Regulations:
- Foreign firms must comply with the requirement of employing a minimum of 70% Pakistani engineers.
- Any changes affecting the license must be reported to the PEC.
Application Process:
- The application must be filled in capital letters and accompanied by the necessary documents and fee payment evidence.
- Detailed instructions and financial limits are provided in the PEC’s official documentation.
Client Information Article: Overview of PEC Registration Categories, Codes, and Specializations for Constructors/Operators
The Pakistan Engineering Council (PEC) classifies various engineering activities into distinct categories, each with its unique code and specialization description. These classifications are essential for foreign and local firms seeking PEC registration, as they delineate the scope of services that a firm is authorized to provide. Below is a concise overview of these categories.
Civil Engineering Construction (CE)
- CE01 – Road and Pavements, Drainage & Retaining Structure, Signcraft Installation:
- Focuses on road construction, pavements, bus bays, open car parks, and related works.
- Includes the installation of sign posting systems for complexes, airports, and shopping centres.
- CE02 – Bridge Structures, Piling:
- Encompasses the construction of bridges (concrete, masonry, timber, steel) and piling works.
- CE03 – Marine Structures, Dredging, Underwater Works:
- Involves construction of marine structures (jetties, ports, wharves) and underwater works.
- CE04 – Dams/Water Retaining Structures, Irrigation & Flood Control Systems:
- Covers the construction of dams, reservoirs, aqueducts, and related earthworks.
- CE05 – Offshore Works:
- Focuses on offshore construction and related activities.
- CE06 – Tunnelling and Underpinning:
- Involves tunnelling and underpinning works.
- CE07 – Railways Tracks:
- Installation and maintenance of railway tracks.
- CE08 – Oil and Gas Pipelines:
- Focuses on the installation, maintenance, and repair of oil and gas pipelines.
- CE09 – Sewerage Works, Water Supply:
- Involves sewerage pipelines, treatment works, and water supply systems.
- CE10 – General Civil Engineering Works:
- Covers a broad range of civil engineering works, including landscaping, concrete repairs, and general building maintenance.
Building Construction (BC)
- BC01 – Prefabricated Buildings and Steel Framed Buildings and Industrial Plants:
- Construction of buildings and plants using prefabricated components and steel frames.
- BC02 – Restoration and Conservation:
- Focuses on building restoration and conservation.
- BC03 – High Rise Buildings:
- Specialization in the construction of high-rise buildings.
Mechanical Engineering (ME)
- ME01 – HVAC:
- Installation and maintenance of heating, ventilation, and air conditioning systems.
- ME02 – Fire Prevention and Protection System:
- Involves installation and maintenance of fire alarms and protection systems.
- ME03 – Lifts, Escalators, Compressors, Generators:
- Covers the installation and maintenance of lifts, escalators, and generators.
- ME04 – Building Automation System:
- Involves automation systems in buildings and industrial processes.
- ME05 – Workshop, Mill, Quarry System:
- Focuses on the installation and maintenance of workshop, mill, and quarry systems.
- ME06 – Specialized Fabrication and Treatment:
- Involves specialized plant erection, maintenance, and repair works.
Electrical Engineering (EE)
- EE01 – Sound System:
- Installation and maintenance of audiovisual and public address systems.
- EE02 – Security, Safety Surveillance System:
- Involves security and surveillance systems installation and maintenance.
- EE03 – Building Automation System and Energy Generation System:
- Focuses on building and industrial control systems, including energy generation.
- EE04 – Low Voltage Installation:
- Involves general wiring and control system works not exceeding 1 KV.
- EE05 – High Voltage Installation:
- Specialization in high voltage equipment and systems.
- EE06 – Specialized Lighting System:
- Focuses on various lighting installations, including street and stadium lighting.
Electronics Engineering
- EE07 – Telecommunication Installation:
- Covers telecommunication systems, including PABX and satellite systems.
- EE08 – External Telecommunication Works:
- Involves telecommunication cabling and related infrastructure.
- EE09 – IT & Software Engineering:
- Focuses on IT and software-related engineering services.
- EE10 – Miscellaneous Specialized:
- Covers a range of specialized installations, including medical and electronic equipment.
General Category
- Any Other Works:
- For works not covered in the above categorization, specific codes (CE11, BC04, ME07, EE11) are provided, allowing firms to define their specialized services.
This classification system enables the PEC to regulate the engineering sector effectively, ensuring that firms are qualified for the specific services they offer. For foreign and local firms, understanding and selecting the appropriate category is crucial for successful registration and compliance with PEC standards.
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.
WhatsApp +92-304-8734889
Landline : +92-51-8442922
Aemen@joshandmak.comÂ
Legal Note: Registration Procedure for Foreign Consulting Engineer Firms in Pakistan
Overview: The registration of foreign consulting engineer firms in Pakistan is governed by specific regulations set forth by the Pakistan Engineering Council (PEC). These firms, whether partially or wholly owned by foreign nationals or those having a branch office in Pakistan, are required to undergo a defined registration process before commencing any assignments within the country.
Definition: A foreign consulting engineer firm is defined as an enterprise that is either partly or wholly owned by foreign nationals. Additionally, any consulting engineers firm registered outside Pakistan is considered a foreign firm, irrespective of the ownership by nationals. This also applies to firms that have a branch office in Pakistan or those adopting a name similar to an expatriate firm.
Procedure for Registration:
- Pre-Registration Requirement:
- Foreign consulting engineers must first obtain pre-registration with the Pakistan Engineering Council before starting any assignments in Pakistan.
- A Pre-registration Certificate is issued to allow operations within Pakistan.
- The Application Form for pre-registration can be obtained from any of the PEC offices.
- Registration for Specific Projects:
- If a foreign consultant is interested in bidding or negotiating for any project in Pakistan, they must register specifically for that project.
- This involves fulfilling conditions set out in clause (2) of bye-law 6 of the PEC regulations.
- The following documents, along with the requisite processing fee, must be submitted to obtain a Registration Certificate: a. Registration certificate of the Pakistani consultants and pre-registration certificate of the foreign consultants. b. A joint venture or association agreement between the parties, specifying the shares of each party and the name of the lead consultants. c. A brief description and scope of work for which the association or joint venture intends to participate in bidding.
The registration process for foreign consulting engineer firms in Pakistan is meticulous and requires compliance with specific legal and regulatory requirements. It is designed to ensure that foreign firms operate within the framework of Pakistani laws and contribute effectively to the engineering sector. Firms seeking to undertake projects in Pakistan must adhere to these regulations to ensure legal operation and successful participation in the Pakistani engineering market.
Pakistan Engineering Council (Conduct and Practice of Consulting Engineers) Bye-laws,1986.
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.
- Definition of Foreign Consulting Engineer: The bylaws define a “foreign consulting engineer” as an enterprise incorporated or registered as a consulting engineer outside Pakistan. This definition is crucial as it sets the boundary for what constitutes a foreign entity in the context of these regulations​​.
- Registration for Specific Projects: Foreign firms are required to register as consulting engineers for specific projects in Pakistan. This requirement ensures that foreign firms are recognized and monitored by the relevant Pakistani authorities, maintaining a level of control and oversight over their activities within the country.
- Requirement for Local Collaboration: Perhaps the most significant aspect of these bylaws is the stipulation that foreign firms must associate or form joint ventures with Pakistani consulting engineers. This requirement serves multiple purposes:
- Skill Transfer: It encourages the transfer of knowledge and skills to the local workforce.
- Local Participation: Ensures local participation in projects and the utilization of local expertise.
- Limited Scope of Foreign Involvement: The foreign firm’s involvement is restricted to their specific expertise that is unavailable locally. This prevents foreign firms from overshadowing or completely taking over roles that could be competently filled by Pakistani professionals.
- Exemption for Short Assignments under Technology Transfer Agreements: Foreign consultants visiting Pakistan for short assignments under technology transfer agreements are exempt from certain clauses, provided they have prior approval from the Council for the specified project. This exemption recognizes the need for short-term, specialized contributions by foreign experts without the necessity for more extensive regulatory compliance.
These bylaws are significant for a few reasons:
- Ensuring Quality and Expertise: They ensure that foreign firms and consultants brought into the country add value in areas where local expertise is lacking.
- Protecting Local Industry: By necessitating partnerships with local firms, these bylaws protect the local consulting engineering industry from being marginalized or overshadowed by international players.
- Regulatory Compliance: They establish clear guidelines for foreign entities, ensuring that they operate within a structured and regulated framework, which is crucial for maintaining standards and accountability in the engineering sector.
In summary, these bylaws create a balanced ecosystem where foreign expertise is welcomed but is carefully integrated with local talent and resources. This approach not only promotes international collaboration and knowledge sharing but also safeguards the interests and development of the local engineering community in Pakistan.
