1 18 International Payments and Related Issues. Summary: 18.1 Payment Currency Clauses Mobilization and Progress Payments Insurance Issues Taxation Issues Uncontemplated Site Conditions.

Payment. Payment procedure issues: –purchasing power of money is affected by: inflation (cost of materials, labor, equipment, etc); do you have fixed or variable prices? changing relative values of currencies; US$ Exchange Rate X$ Event $10, : 2.0$20,000 pay wages $9, : 2.1$20,800 receive payment When is the best time to buy or sell a currency? NB: in construction, we don’t always have a choice as need money at certain points in time.

3 In what currency should the contractor receive payments?: –often its your own currency, then : you must convert into local currency; you have to deal with unknown exchange rates; extra risk and so contractor may raise prices to compensate; US$ Exchange Rate X$ Event $10,000 owner pays in your currency 1.0 : 1.9$19,000 you convert to pay supplier order materials from supplier $20, : 2.0 $10,000

4 –if paid in your own currency, you can reduce risk by converting a sum of money up front, and investing it locally (in highly liquid form); –risk is reduced if you are paid in the currency that you will be paying out: note, you may be paying in several currencies as you may have suppliers and subcontractors from various countries;

Currency Clauses. Often, neither contractor nor owner want to carry the risk of currency fluctuations. Need some clause that determines the risks (from both currency fluctuations and inflation).

6 Common examples of such clauses are: –Specify the amounts to be paid, and the currency (often a third countries currency) eg: 5,300,000 in Yen; this locks in risk, and either party could win or loose; –Unit of Account Clause: sets a proportion ratio between the two currencies (divides the risk) eg: US$5,000,000 and X$10,000,000 = 50% for a 1:2 exchange rate ; –Index Clause: uses a standard factor (say consumer price index) - payment then fluctuates with the economy - beware, inflation is different for different people/organizations ; –Pricing Clause: enable prices to change with actual price of items (no risk for contractor, but high risk for owner);

Mobilization and Progress Payments. Initialization and start-up costs can be very high on international projects: –consider including a mobilization payment clause (sort of advance payment) may be as much as 20%; –conditions can be set for the use of this money –method of repayment may be stipulated in case contract is terminated.

Insurance Issues. Four types of coverage for international projects: –Inconvertibility Coverage: protects contractor against inability of converting currency in to US$; –Confiscation Coverage: protects against seizure by host government of your assets in the host country (eg: Cuba); –War Coverage: protects damage to your physical assets caused by war, revolution, or insurrection. –Disputes Coverage: in case owner fails to pay an award in favor of contractor pursuant to the arbitration provisions.

Taxation Issues. Must be aware of all applicable tax laws: –both in USA and in host country; income taxes; special contractor taxes; city and municipal taxes etc.. –Field of international taxation can be very complex: consider consulting with a tax professional;

Uncontemplated Site Conditions. Check the general conditions of each contract to see if it includes: –an uncontemplated site conditions clause; –procedures for obtaining an equitable adjustment for a changed condition; Make sure that there is a physical conditions clause that relieves you from extra costs resulting from unforeseen circumstances