Project bidding: navigating the tricky legal landscape

Bidding on infrastructure projects in Africa is a venture with its own set of challenges.

Africa has long been hailed as the next frontier for economic growth. But, in many ways, Africa is still an unruly teenager — unpredictable and oftentimes volatile. For those seeking to profit in this uncertain terrain, depth of knowledge about the legal and commercial landscape is the most important risk-mitigating tool available. The key is tying local presence and expertise to international resources and standards of service.

Timing is key for any prospective bidder. African projects, in the main, take longer to procure and construct than would be the case in other parts of the world. This is a reality for which foreign companies should be prepared.

Before becoming involved in any African infrastructure project, prospective bidders should obtain a clear understanding of the legal environment in which they will be required to operate and the hoops they will need to jump through. This includes issues such as stamp duty, legal tariffs, notarisation dues and licences for carrying out specific types of work or work for public bodies. These all have real time and cost implications which must be factored in.

Companies should also take into account the need to comply fully with all the requirements of expressions of interest and requests for proposals. Since these documents are not always models of clarity, the need for proper understanding and clarification is essential to ensure that bidders are not disqualified.

Completeness of public records, certainty of title and the ability to give security over assets are considerations which are taken for granted in most places other than Africa. Public records may be missing or difficult to access and determining who holds the title to certain land or assets may not be a short or simple task. Even if that can be determined, country-specific rules regarding the giving of security may affect the manner in which finance can be acquired.

Local content laws and requirements are becoming part of the legal landscape in African infrastructure deals. Participation in infrastructure projects in Africa also requires knowledge of the local market and potential partners to assist in meeting these requirements.

While the African path will continue to be uncertain as the continent matures, there are some key mechanisms for mitigating the risks associated with participating in infrastructure projects. Offshore holding companies should be a key element of any African strategy. The possible tax benefits of splitting contracts to allow parts of the work to be done offshore should be carefully investigated and considered, as should the exchange control regulations associated with offshore companies and supplies. Proper currency hedging is also an essential consideration.

Choice of law provisions are another key tool for de-risking African projects. Such provisions allow companies to avoid the vagaries of local law, which may not be sufficiently developed to deal with large infrastructure projects and the financing structures that accompany them. Where choice of law is not possible, for example in Mozambique, offshore structuring may allow parties to limit the parts of the work governed by local law.

Including a robust mechanism for resolving disputes is a further important risk mitigator. Arbitration under the rules of one of the established arbitration bodies is an excellent way of obtaining high quality outcomes. Parties entering into African projects involving Chinese counterparties may wish to consider the newly-established China-Africa Joint Arbitration Centre — an arbitral body with a specific focus on resolving disputes arising out of SinoAfrican transactions.

Political and commercial risks should be mitigated through the use of export credit agencies. Credit enhancement, in the form of development finance institution involvement or through governmental or multilateral support, should also be explored where possible.

The legal challenges presented by African projects are varied. Successfully navigating them requires a comprehensive understanding of the country-specific legal environment and risk factors. There is no substitute for firsthand in-country expertise.

OFFSHORE HOLDING COMPANIES SHOULD BE A KEY ELEMENT OF ANY AFRICAN STRATEGY