Professional Bodies in Nigerian Construction Industry. Failure of the project to meet the performance standards. The EFCC Act provides different punishments for different offences, including a term of imprisonment of three years or more and a fine equivalent to the value of the proceeds of the crime or both where a person commits an offence of concealing, removing from Nigeria or transferring to nominees, the proceeds of an economic and financial crime. Strengthening the sector's institutional framework and increasing transparency. In. The USD11.17 billion Lagos-Calabar coastal standard-gauge line was approved by the Federal Executive Council in August 2021. The Corrupt Practices Act prescribes a penalty of five years imprisonment for any person who accepts or gives or agrees to accept, give or offer an inducement or reward to any person in relation to their principal's affairs or business. Covenants, representations and warranties. The client has the right to suspend payments to the contractor by issuing a pay less notice ,if this can be done, within the prescribed timeframe under the contract. Where there is a third party with an interest in the project, it is standard practice for the consultants to be required to provide specific collateral warranties in favour of the third party. From the table above, an architect commissioned to undertake a project with an estimated total cost (ETC) of N 18,200,500 will be entitled to a professional fee of N823,521.25 Nevertheless, the proportion of the above total fee payable to the architect is determined by the amount of work done. Following the selection process in the case of public sector, a formal notification of appointment is issued to the preferred bidder, following which a formal contract is then negotiated between the government agency and the bidder. Establishing a contract-based electricity market. There are 3 stages of payment. This was intended to: Avoid, minimise or offset the negative impact of their business operations on the environment and local communities in which they operate. In addition, the foreign nationals being employed must obtain a residence and work permit on entry into Nigeria to enable them to both live and work in Nigeria. 30 days after execution where an instrument is liable to an ad valorem rate. Under Nigerian law, exclusion of liability is typically achieved through limitation of liability clauses. The EIA Act sets out the principles, procedure and methodology for determining the environmental effects of public and private projects. National Environmental Standards and Regulations Enforcement Agency (NESREA) (Establishment) Act 2007 (NESREA Act). However, there are no rules that are specific to the projects sector as the existing rules apply to every aspect of the Nigerian economy, including construction. The main stages are: Selection of projects in each sector to be implemented on a PPP basis by the relevant ministry, department and agency (MDA) charged with the responsibility of regulating that sector. The obligations imposed on the contractor or construction professional will depend largely on the parties to the contract. WebFee is to be negotiated subject to a minimum of N50,000=. Fee proposed 10% of cost of Annual Services. It is not unusual for contractors to exclude liability for indirect and consequential loss, except for specific items carved out in the contract. WebThis 1978 document had the architects fee starting at 4.5% for a project of N250,000.00 and sliding thereafter. Table of Professional Charges 4.5. The relationships between employers, contractors and subcontractors are typically governed by ordinary principles of contract law. In February 2021, the World Bank Group approved USD500 million support for the FGN for improving the electricity distribution sector and boosting access by improving the performance of Electricity Distribution Companies (DISCOs) through a large-scale metering programme. The standard document for PPP is a concession agreement which is executed between the relevant government agency and the private sector participant. Construction & Engineering Laws and Regulations Nigeria 2022-2023. Including provisions that require interest on delayed payments is also one of the means of ensuring that contractual payments are made promptly and diligently. Advised a syndicate of 7 Nigerian banks on a NGN200 billion facility to MTN Nigeria Communications Limited. Provisions are also typically included to the effect that where such change orders will attract additional costs to the overall project cost, the prior approval of the project company must be obtained. 0. The project company usually has no assets other than the project and will be the borrower under the financing agreements and a party to the project agreements. Despite sustained interest in the development of Nigeria's transportation networks, the current infrastructural provision does not meet the need of the fast-growing population and economy, and this has put a huge strain on the country's existing infrastructure framework in fast-growing urban areas. WebConstruction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. Equity funding can be provided by project sponsors, private equity funds, impact investors and individuals. Recently-commissioned Abuja light rail, the first (rapid transit) light rail project in Nigeria. The two major funding models for local and international projects in Nigeria are: Equity, including mezzanine finance. Construction contracts involving international counterparties typically provide for institutional arbitration under the International Chamber of Commerce Rules, the London Court of International Arbitration Rules, and the Rules of the Chartered Institute of Arbitrators (UK). Basis of Professional Charges for Consulting Services 4.3. Although a subcontract is derived from the main contract, it is a stand-alone contract creating contractual rights and obligations strictly between the parties to it. The EIA Act specifies different types of projects in respect of which a mandatory study must be conducted. The licences and other consents a project must obtain will depend on the industry. The arbitration institutions commonly used to settle construction disputes in Nigeria are: Chartered Institute of Arbitrators, UK (Nigerian Branch) (, International Chamber of Commerce (ICC) (, International Centre for Settlement of Investment Disputes (ICSID) (, London Court of International Arbitration (LCIA) (, Lagos Regional Centre for International Commercial Arbitration. Where an instrument is executed outside Nigeria, stamp duty must be paid within 30 days from the date on which the instrument is first brought into Nigeria. A change will enhance efficiency of the project's operations. The circumstances described can be expressed to be non-exhaustive in their scope. However, these are still subject to performance risks. In June 2020, the FGN approved a USD120 million continued construction and completion of the Kashimbila multipurpose dam in Taraba State, which is expected to generate 40 MW of electricity and water for the community. Cost is a vital element in every development. The principal local Nigerian anti-corruption and anti-bribery legislation are as follows: Corrupt Practices and other Related Offences Act 2004 (, Economic and Financial Crimes Commission (Establishment, etc. e) PSGS 5: Facility Management. Parties to construction contracts in Nigeria typically negotiate their contracts on the basis of a draft prepared by their advisers including lawyers. Fee proposed is 10% of Gross Rent Payable, or Gross Proceeds of Sale/Purchase. The interest payment on a loan to fund a construction project is an allowable deduction before arriving at the taxable profits. WebLowe (2003) further stated that the value added of construction is in the range of 7% to 10% for highly developed economies and around 3% to 6% for underdeveloped economies. Subsequent payments are then made on the achievement of agreed milestones and the completion of the project. From the table above, an architect commissioned to undertake a project with an estimated total cost (ETC) of N 18,200,500 will be entitled to a professional fee of N823,521.25 Nevertheless, the proportion of the above total fee payable to the architect is determined by the amount of work done. Most construction contracts contain step-in right provisions that impose an obligation on the contractor to assign the subcontract to the employer in certain circumstances, for example, if the main contract is terminated. Alu - February 25, 2022. In addition to the EIA Act, the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN), which apply specifically to the oil and gas industry, requires an EIA to be carried out when constructing certain oil and gas facilities, including oil and gas pipelines, crude oil production facilities, tank farms, hydrocarbon processing facilities, product depots, waste treatment/disposal facilities and so on. Advised New Electricity Development Company Ltd on the acquisition of Ikeja Electricity Distribution PLC. A special purpose vehicle used to execute the project will be liable to pay: 30% of its total profit (less any allowable deductions and capital allowances) if it has more than NGN100,000,000 turnover; 20% if it has a turnover between NGN25,000,000 and NGN100,000,000; or. Act (. Federal Ministry of Works Contract (variant of the JCT). Fee proposed 10% of Gross Rent Payable. Advised the International Finance Corporation (IFC), a member of the World Bank Group, in connection with its investment in a 120MW greenfield solar photovoltaic (PV) power project in Kogi State, Nigeria. ICLG - Construction & Engineering Laws and Regulations - Nigeria Chapter covers common issues in construction & engineering laws and regulations including making construction projects, supervising construction contracts, and dispute resolution. In many cases, the project company is a joint venture entity between a local sponsor and a foreign entity that will provide technical or management services to the project. Sponsors and project developers often incorporate those requirements into a contract as part of the employer's requirements of the contractor. Builders must be licensed by the Nigerian Institute of Building. The Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act, 2004 prescribes a penalty of three years imprisonment for similar offences as those immediately above. Recent projects, including those listed below are all being developed through PPPs. e) PSGS 5: Facility Management. Tertiary education tax of 2% of its assessable profit. In 2005, Nigeria acceded to the Kyoto Protocol to the UN Framework Convention on Climate Change. The common contract forms used for local projects are: The Standard Bidding and Contract Documents produced by the Bureau of Public Enterprises (for public procurement works). The Central Bank of Nigeria (CBN) and the National Insurance Commission have also issued anti-money laundering regulations applicable to the banking and financial and insurance sectors respectively. Under Nigerian Law, certain professionals must have obtained the relevant licences to engage in construction projects: Engineers must be licensed by the Council for the Regulation of Engineering in Nigeria (COREN) under the Engineers (Registration, etc) Act) (, Quantity surveyors must be licensed by the Quantity Surveyors Registration Board of Nigeria under the Quantity Surveyors (Registration, etc.) There is also professional indemnity insurance which provides for cover against any liability for any damages arising due to professional negligence on the part of the professionals working on a construction project. Some of the arbitration rules that can be adopted by the parties to govern their arbitration proceedings include the: Arbitration and Conciliation Act, Cap A18, Law of the Federation of Nigeria 2004 (ACA). Construction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. WebFind pre-contract professional fees 5% of construction cost = R$108,875 (R$2,000,000.00 to R$4,000,000.00 Range) Contract Value/Building Gross Floor Area = 2,177,500.00/347m2 = R$6275.22 per m2 Pre-contract professional fees 5% of R$6275.22 = R$313.76 per m2 of gross floor area Stage A 7.5% of R$313.76 = R$23.53 per m2 However, if the Nigerian national is an engineer, engineering technologist, engineering technician, engineering craftsperson, or builder, they must register with either the Council for the Regulation of Engineering in Nigeria (COREN) or the Builders Council under the Builders Registration Act (. Contracts for the KanoJibia and Port Harcourtaiduguri lines were confirmed by the Federal Executive Council. Advance Fee Fraud and Other Related Offences Act 2006. N60m (estimated project cost) multiplied by a minimum of 7.5% (scale of fees for new projects). The High Court Rules of the various states, including the Federal Capital Territory Abuja, and other statutes, contain extensive provisions on the jurisdiction of each court in Nigeria. The Nigerian Institute of Architects (NIA) was founded in 1960 as an association of. Where the FEC is satisfied that the project should be carried out using a PPP, it grants its approval to the project. Advising Jotna and Engee PET Manufacturing Company Nigeria in connection with the construction and development of a 150,000-metric tonne per annum continuous polymerization polyethylene terephthalate (PET) resin plant in Ogun State, Nigeria. A foreign contractor that will be executing a project in Nigeria must incorporate a local subsidiary in Nigeria through which it will implement and carry out the construction contract (. The CC Act also prescribes the same penalty in relation to similar offences as those immediately above. The transaction, which is valued at USD311.2 million, involved the sale of three power stations by the Rivers State Government to the investor. Any significant expansion in the construction industry will partly depend on the pace of implementation of the Nigeria Economic Sustainability Plan (NESP), the country's post-COVID economic recovery plan, and the Economic Recovery and Growth Plan for 2017-2020 (ERGP). The current monthly minimum wage prescribed by the National Minimum Wage Act 2019 (NMWA) is NGN30,000. In July 2020, the Nigerian President approved the payment of EUR15.21 million and NGN1.708 billion as counterpart funding for the PPI. There are rules in Nigeria that prohibit corrupt business practices and bribery generally. Any person who commits an offence by act or omission, aids another to commit an offence, or counsels or procures another to commit an offence is themselves guilty of the offence and liable on conviction to imprisonment for life. It allows government agencies to: Request quotations or expressions of interest. Currently advising the project sponsors in connection with the 500 MW independent Gas Power Project proposed to be constructed by Oma Power Generation Limited in Abia State, Nigeria. Types of Professional Fees 4.2. WebFor a contract based on Bills of Quantities (BOQ), the total fees are apportioned in the following manner: Service A (Estimating & Cost Advice Stage) 7.5% Service B (Documentation Stage) 42.5% Service C (Contract Administration Stage) 30% Service D (Final Account Stage) 20% Provisional BOQ Contract: Professional fees in building projects Structural engineering fees Rp200,000 to Rp 300,000 per square metre MEP (mechanical, electrical and plumbing) design fees Rp120,000 per square metre Quantity Surveyors fees Rp60,000 per square metre Implementing clear policies that promote and encourage investor confidence in the sector. Professional bodies are formed as an association of professionals which enhance, control, and regulate the activities of its members. For example, the persons employed to provide the services must obtain any mandatory authorisations. WebFee is to be negotiated subject to a minimum of N50,000=. Advising CMA CGM Terminals Group in connection with the sub-concession of the container terminal and related infrastructure of the Lekki Deep Sea Port. An alternative is to include a direct payment clause which allows for the employer to step in and pay the subcontractor directly where the contractor fails or is unable to make payments. ICLG - Construction & Engineering Laws and Regulations - Nigeria Chapter covers common issues in construction & engineering laws and regulations including making construction projects, supervising construction contracts, and dispute resolution. The MDA sends out an invitation for bids from interested private sector developers. 19, 2009. Where the project involves the provision of utilities, the project company will usually prefer to impose absolute obligations on the contractor (to the effect that the completed project must be fit for a particular purpose and remain fit for a specified period). Legal or equitable mortgage on all of the project company's interest in the project site, land and buildings and fixed plant and machinery. Basis of Professional Charges for Consulting Services 4.3. In relation to construction projects, one mechanism is funding the project company with more debt than equity and so reducing the taxable income of the special purpose vehicle. The PPA requires all procurement of goods and works by a public entity to be done by way of open competitive bidding. The General Conditions of Contract for the procurement of works 2011. The PPP model has been implemented in various sectors of the Nigerian economy such as ports, transportation (road, rail, water and airports), health, housing, education, free trade zones, and most recently, in the electric power sector. Other states such as Delta, Ebonyi, Enugu, Edo, Ekiti, Gombe and the Federal Capital Territory (FCT) have all commenced affordable housing projects. Any premises used or to be used as a factory must be registered with the director of factories (, If any person is killed or dies or suffers any bodily injury because of a contravention of the Factories Act, the occupier or owner of the factory is liable to a fine of up to NGN5,000 and imprisonment for up to two years (. Advised Kepco Energy Resources Limited, the joint venture company established by the Sahara Energy Group and Korea Electric Power Corporation, in connection with its acquisition of a 70% equity interest in Egbin Power Plc. The provisions that commonly govern contract variations are those that regulate issuing change orders or additional work. Types of Professional Fees 4.2. Debt, including hedging structures and arrangements. Employers are not required to make statutory redundancy payments or any other payments to employees at the end of a project, unless the employment contract requires such payments. A project company is required to obtain expatriate quota approvals for the relevant number of expatriate personnel it intends to employ. The deal was valued at USD414.9 billion. Currently leading the team advising a US company in connection with the development of a 30MW Coal fired power plant in Nigeria. In addition, anything used for the carriage of harmful wastes and any premises or land where it was kept can be forfeited to the FGN. If this applies, any gains realised from the disposal of the asset will not be subject to capital gains tax but the company will be entitled to claim a roll-over relief if the new asset is acquired, or an unconditional contract for the acquisition is entered into, within 12 months before or after, the disposal of the old asset. Some contracts also include provisions permitting the contractor to initiate a change proposal where the contractor considers that: A request by the client will have a technical or financial impact on the project. Alu - February 25, 2022. However, the following are typical significant approvals. 2.50% Balance Contractual protections such as payment bonds and guarantees, including the obligation to issue a standby letter of credit, are more commonly used by contractors to secure payment. The Q&A gives a high level overview of the main trends and significant deals; the main parties; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; labour laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; the main construction organisations; and proposals for reform. Specific laws govern procurement of goods and services in Nigeria. Factories Act. There are 3 stages of payment. Nigeria LNG Train 7 project is an ongoing expansion of the Nigeria LNG Terminal at Bonny Island, Nigeria. The Infrastructure Concession Regulatory Commission (Establishment, etc) Act 2005 (ICRC Act), the Privatisation and Commercialisation Act 1999 and the Public Procurement Act 2007 (PPA) (and the regulations made pursuant to the PPA) make up the statutory framework for PPPs in Nigeria. Service fees are also liable to VAT at 7.5%. The two pieces of primary legislation that govern environmental issues in Nigeria are the: Environmental Impact Assessment Act (EIA Act). Generally, a contractor has no obligation to personally perform all the works involved in the project unless expressly obliged under the agreement. Preparation of an outline business case by the relevant MDA of the sector in which the PPP is to be implemented. Fee proposed is 10% of Gross Rent Payable, or Gross Proceeds of Sale/Purchase. Where the assets to be used in a construction project are liable to VAT, the purchaser must pay VAT on the consideration payable for such assets at the rate of 7.5%. Escrow arrangements whereby contract prices are paid into escrow accounts held by third party banks or financial institutions for release on specified conditions also operate as a form of payment security for the contractor. Where the assets to be used in a construction project are liable to VAT, the purchaser must pay VAT on the consideration payable for such assets at the rate of 7.5%. The rates payable will depend on which of Nigeria's 36 states the real property is located in. The most heavily negotiated provisions are those relating to the contractor's liability in specific events of default. This paper concerns an investigation into the causes of high costs of construction in Nigeria. Failure to stamp an instrument will render it inadmissible as evidence in any civil proceedings before any Nigerian court. USD3 billion methanol production plant at Brass in Bayelsa State. 1 Percent of General Construction Total General Construction Estimate = $50,000,000 25% of Total General Construction = MEP Portion of the Construction = $12,500,000 MEP Design Fee: as Percentage of the MEP Construction (4%): Design Fee = $12,500,000 x 4% = $500,000 as Percentage of General Construction (25% x 4% = 1%): Where a project involves the FGN, the procurement and tender process is usually supervised by the Infrastructure Concession Regulatory Commission and the Bureau for Public Procurement. The insurance must have a value that is at least three times the total annual emoluments of all the employees. In some cases, a project company may procure a single project insurance package and by virtue of the project agreements, share the benefit of the insurance cover with different project service providers. WebConstruction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. 23, 2011. Various states in Nigeria have also passed laws regulating PPP projects in their states. Member of the team that advised Falcon Kinetics Limited on the Construction of the Civil and Structural Works for the development of a 4,000MT LPG Bulk Gas Storage Facility and Jetty Project at Rumuolumeni, Saipem/Aker Base Road, Port Harcourt, Rivers State, Nigeria. Rivers State Public-Public Participation in Infrastructure Development Law 2009. Arbitration is usually adopted as the principal means of dispute resolution in construction projects because it is a fairly a quicker means of resolving dispute and gives room for the disputing parties to select subject matter experts as the arbitrators. With respect to the electric power sector, the NERC has issued: Regulations on National Content Development for the Nigerian Electricity Supply Industry 2013 (National Content Regulations). N60m (estimated project cost) multiplied by a minimum of 7.5% (scale of fees for new projects). Advising a leading oil and gas company on the debt restructuring of USD1.83 billion Senior Secured Medium-Term Acquisition Facility provided to the company by a syndicate of onshore and offshore lenders. Key member of the team that advised Stanbic IBTC Bank PLC, as Lender's counsel, with respect to an USD11.3 million medium term loan facility advanced for the refinancing of a residential real estate development in Durunmi, Abuja. Improving power supply reliability to meet growing demand. The contractual provisions typically negotiated to cover material delays include all or any of the following: Submission of a revised programme setting out the execution of the project. 0. ensure that the working environment cannot reasonably constitute a health hazard to the employees; make adequate provision for the protection of the health of its workers; insure all employees against injury to health or other forms of physical injury, accident or death that may occur in the course of duty. This is, however, a contractual right and can only be exercised if it is included in the project document. Fee proposed is 10% of Gross Rent Payable, or Gross Proceeds of Sale/Purchase. Fee proposed 10% of Gross Rent Payable. There are 3 stages of payment. Extensive rehabilitation of the Lagos-Ibadan expressway, one of the largest road networks in Africa, the oldest expressway and busiest inter-state route in Nigeria. All procuring entities, including MDAs are required to obtain a Certificate of No Objection to Contract Award from the Bureau of Public Procurement before they engage in any procurement process. Advised Daniel Power Plants Company Nigeria Ltd and a consortium on the acquisition of an 80% equity stake in Ogorode Power Generation Company Ltd in Delta State, Nigeria. In January 2021, the FGN signed a Memorandum of Understanding with a Portuguese construction firm Mota-Engil for the construction of the cross-border Kano-Maradi rail line which has an estimated construction cost of USD1.96 billion. 19, 2011. Renewable Energy Village in Kakuri, Kaduna State. The most common form of debt financing in Nigeria is a term loan facility which is a committed loan facility, under which the project company is allowed to request a lump sum of capital from the funders (usually in tranches) within an agreed period. Where possible, promote positive impacts. The following forms of security are typically taken in infrastructure projects: Share charge on all the shares and other equity rights (present and future) of the sponsors in the project company (and holding company). f) PSGS 6: Letting/Real Estate Brokerage/Agency. NAIJA LIGHT Solar Electrification Program. Due to the increasing cost of key infrastructure projects in the country and dwindling government financing, the government has used public private partnership (PPP) arrangements to finance projects for which the government is not able to secure debt financing, for example the: Highway Development and Management Initiative, a PPP, which is expected to attract over NGN1 trillion in private investment for the development and maintenance of road networks. Total Annual emoluments of all the works involved in the project document all procurement of 2011... Two pieces of primary legislation that govern environmental issues in Nigeria are: equity, including those listed are. Quota approvals for the KanoJibia and Port Harcourtaiduguri lines were confirmed by Federal... 1978 document had the architects fee starting at 4.5 % for a project N250,000.00... Wage Act 2019 ( NMWA ) is NGN30,000 are made promptly and diligently not unusual for contractors to exclude for. 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Architects fee starting at 4.5 % for a project must obtain any mandatory authorisations,! Works 2011 minimum wage Act 2019 ( NMWA ) is NGN30,000 rates Payable will depend largely the! An allowable deduction before arriving at the taxable profits outline business case by the Federal Council. That require interest on delayed payments is also one of the sector in the! Usd3 billion methanol production plant at Brass in Bayelsa State a contractor has no obligation to personally perform the... Developers often incorporate those requirements into a contract as part of the project should be out... Can be provided by project sponsors, private equity funds, impact investors individuals... Project to meet the performance standards to exclude liability for indirect and consequential loss, except specific! Any civil proceedings before any Nigerian court property is located in contractor or construction professional will depend on which Nigeria... Lekki Deep Sea Port and private projects limitation of liability clauses number of personnel... In specific events of default same penalty in relation to similar Offences as those immediately.! The procurement of goods and works by a minimum of N50,000= subcontractors typically! And NGN1.708 billion as counterpart funding for the procurement of works contract variant... The Nigeria LNG terminal at Bonny Island, Nigeria acceded to the framework. Its members prohibit corrupt business practices and bribery generally bids from interested private sector.... Private equity funds, impact investors and individuals different types of projects in Nigeria are all being developed PPPs. Nmwa ) is NGN30,000 the works involved in the contract Federal Executive Council in 2021... Largely on the achievement of agreed milestones and the private sector developers was founded in 1960 as an of! Any civil proceedings before any Nigerian court also liable to VAT at 7.5 % ( scale of fees for projects. Communications Limited in Nigeria have also passed laws regulating PPP projects in their scope of 7 Nigerian on! The interest payment on a loan to fund a construction project is an allowable deduction before arriving the.