The project owner typically takes the following risks: Risk of ground conditions, including any archaeological discoveries or ionisation and contamination of the soil. In 2019, the Ministry of Works and Housing set aside a total sum of 19.8 billion naira ($55 million) for the construction of 2,383 units of housing across the 36 states of Nigeria under the National Housing Program. The 1999 Constitution of the Federal Republic of Nigeria (as amended) (Constitution) creates a high court for each state and the federal capital territory. However, where the owner of the land disposes of it, any gains realised will be liable to capital gains tax at 10%. The interest payment on a loan to fund a construction project is an allowable deduction before arriving at the taxable profits. Although there are no specific tax incentives for infrastructure projects in Nigeria, there are incentives that cut across all sectors of the Nigerian economy. It also contains information on the legal, financial, environmental and technical aspects of the proposed project. The CC Act also prescribes the same penalty in relation to similar offences as those immediately above. Where the dispute relates to the construction project itself, it is the high court of the state where the asset is located that would have jurisdiction over the dispute. e) PSGS 5: Facility Management. 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). 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. Time or Duration Based Fees CHAPTER FIVE: Adjustment of Fees 5.1. Professional bodies are formed as an association of professionals which enhance, control, and regulate the activities of its members. Generally, a contractor has no obligation to personally perform all the works involved in the project unless expressly obliged under the agreement. The contractual provisions that govern or limit liability include provisions dealing with any of the following: Indemnities on account of losses caused by delay. 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). Construction & Engineering Laws and Regulations Nigeria 2022-2023. A construction agreement is liable to nominal stamp duty of NGN500 on an original and NGN50 on each counterpart. Types of Professional Fees 4.2. The Employee Compensation Act 2010 established the Employees' Compensation Fund (Fund) and requires every employer to make a minimum monthly contribution of 1% of its total monthly payroll into the Fund. 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. This can be mitigated by seeking assurances from the government on the basis of attracting foreign investment or undertaking projects in conjunction with multilateral agencies. For example, in Lagos State, the transfer fees payable on a transfer of land total 3% of the assessed fair market value of the property. In other cases, the overall cap does not exceed the amount of the contract price. 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 (. However, these are still subject to performance risks. This can be done as currently there are no thin capitalisation rules in Nigeria and parties can take advantage of this. 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. 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. It is common for a tender process to be carried out or for qualified professionals to be invited to submit bids or proposals in relation to private projects. Fee proposed is 10% of Gross Rent Payable, or Gross Proceeds of Sale/Purchase. 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: One which promotes competition, economy and efficiency. Equals N4.5m (architects fee for pre-contract services) Note; ARCON conditions of engagement say that these fees are the minimum that should be charged, therefore, your design circumstances may warrant a little increase in the percentage. It is not clear whether a common law mechanic's lien will apply to construction projects where the contractor is unpaid. 19, 2009. There is no limit to the number of hours an employee can work in a day. An arbitral award is both binding and enforceable by Nigerian courts. WebFee is to be negotiated subject to a minimum of N50,000=. Including provisions that require interest on delayed payments is also one of the means of ensuring that contractual payments are made promptly and diligently. 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 Cost is a vital element in every development. 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.) Factories Act. In the case of state governments, the relevant PPP office co-ordinates the procurement and tender process in accordance with the state's PPP law (if any). In addition, the NMWA does not apply to establishments that employ less than 25 persons, or in which people are employed on a part-time or piece-rate basis. According to the Minister of Transport, the Kano-Maradi rail is aimed at facilitating bilateral trade between Nigerian and Niger. WebConstruction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. 0. The Labour Act provides that normal work hours are to be fixed by mutual agreement, collective bargaining, or by an industrial wages board. 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. 650,000 barrels-per-day capacity oil refinery being constructed by the Dangote Group in Lagos. 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). For both local and international projects, a syndicate of lenders typically provide the debt financing but some local projects are funded on a bilateral basis. 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. The EIA must be approved by the Department of Petroleum Resources (DPR). London Court of International Arbitration Rules. 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. The preferred developer is selected through an open competitive bidding process in compliance with the PPA. 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. Service fees are also liable to VAT at 7.5%. Fee proposed is 10% of Gross Rent Payable, or Gross Proceeds of Sale/Purchase. National Environmental Standards and Regulations Enforcement Agency (NESREA) (Establishment) Act 2007 (NESREA Act). 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 REA's mandate is to increase electricity access to rural and underserved communities through public and private sector engagement. Failure of the project to meet the performance standards. The funders may decide to call for the performance bond or take out the parent company guarantee provided by the contractor where such exists. This paper concerns an investigation into the causes of high costs of construction in Nigeria. Table of Professional Charges 4.5. WebConstruction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. Rivers State Public-Public Participation in Infrastructure Development Law 2009. There is also no compulsory levy to fund local infrastructure. 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. In this revision, the starting band was increased from N250,000.00 to N5 Million. The fact that the employer has given their consent to the delegation of some of the main contractor's obligations to a subcontractor does not, therefore, give rise to any contractual relationship between the employer and the subcontractor and there is no privity of contract between the employer and subcontractor. On 16 August 2021, the President signed the long awaited Petroleum Industry Bill into law. Basis of Professional Charges for Consulting Services 4.3. 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. Banks and Other Financial Institutions Act 2020 (BOFIA), Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act (. The deal was valued at USD414.9 billion. The ICRC Act provides for the invitation of open competitive bids which must be published in at least three national newspapers having wide circulation in Nigeria. In terms of transaction structure, a special purpose vehicle (project company) is usually set up by the sponsors for the sole purpose of implementing the project. Despite the impact of the pandemic that led to a significant decline of construction activities, the industry was forecast to be one of the lead drivers of the Nigerian economy in 2021. 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. Fixed and floating charges over all the project company's assets and receivables, bank accounts. Nigeria LNG Train 7 project is an ongoing expansion of the Nigeria LNG Terminal at Bonny Island, Nigeria. 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: This is, however, a contractual right and can only be exercised if it is included in the project document. This was submitted by the Association of Consulting Engineers in Nigeria and the Nigerian Society of Engineers to the Council for the Regulation of Engineering in However, Nigeria currently builds just 2,000 houses per year. The EGASPIN provides for the following processes: Environmental screening to be carried out during concept selection studies. 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 (. A company can also mitigate its capital gains tax exposure by using any available roll-over reliefs, which apply if a business asset is sold and the proceeds used to acquire a new asset (or an interest in a new asset) to be used for trade. For example, most of the roads networks in Nigeria are still in bad shape. Standard forms of contracts prepared by the Joint Contract Tribunal (JCT). 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. It is uncommon for payment obligations under construction contracts to be secured by land or property. Enter to open, tab to navigate, enter to select, https://content.next.westlaw.com/practical-law/document/I0487c15d13ed11e498db8b09b4f043e0/Construction-and-Projects-in-Nigeria-Overview?viewType=FullText&transitionType=Default&contextData=(sc.Default), Construction and Projects in Nigeria: Overview, https://iclg.com/practice-areas/project-finance-laws-and-regulations/nigeria. Data provided by the National Bureau of Statistics (NBS) shows that the construction sector grew by only 1.42% in Q1 2021 from 1.21% in Q4 2020. Other regulations and guidelines which also govern environmental issues in specific sectors in Nigeria include: National Environmental (Construction Sector) Regulations, SI No. Advised a syndicate of lenders in connection with the amendments to, and increase in the size of a loan of approximately USD530 million to Shoreline Natural Energy Resources Limited, a Nigerian oil and gas exploration and production company. There are 3 stages of payment. Assignment of rights in the project documents, insurance policies, hedging arrangements, future and present undertaking, and so on. The Pension Reform Act 2014 imposes an obligation on employers to obtain life insurance cover for all their employees. There are no prescribed methods of payment for construction work in Nigeria, as a result, the payment method to be adopted is usually a subject of negotiation between the parties and can be influenced by the nature of the project. 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). Advised an international energy group, and a syndicate of lenders, on a USD530 million facility to an indigenous exploration and production company. An employer that breaches the Construction Law commits an offence and on conviction is liable for: individuals: a fine of up to NGN100,000 and a term of imprisonment of up to three months; In relation to health, safety and environment in the power sector, the Nigerian Electricity Regulatory Commission (NERC) published the Nigerian Electricity Health and Safety Code, 2014 (Code) and the Nigerian Electricity Health and Safety Standards Manual (Manual). 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 parties must also ensure that the service is not being carried on illegally and must comply with local content requirements set out in either regulations or executive orders made by the President of Nigeria. Fee proposed 10% of Gross Rent Payable. WebScales of fees for prime consultant Cost of Project (3 Fees Payable as a percentage of cost of project Up to 5 million 4.73% Next 10 million or part thereof 450% Next 15 million or 4.25% Next 45 million or part thereof 4.00% Next 75 million or part thereof 3.50% Next 150 million or part thereof 3.00% Next 200 million or part thereo! WebFee is to be negotiated subject to a minimum of N50,000=. However, Nigerian courts would be unwilling to enforce clauses limiting liability for all or any of the following: There are no laws in Nigeria that stipulate standard forms or construction process or restrict parties' ability to enter into architectural, design & consulting contracts. Advising CMA CGM Terminals Group in connection with the sub-concession of the container terminal and related infrastructure of the Lekki Deep Sea Port. The provisions that commonly govern contract variations are those that regulate issuing change orders or additional work. Construction contracts involving only Nigerian parties tend to provide for ad hoc arbitration under the UNCITRAL Model Law on International Commercial Arbitration or the Nigerian Arbitration and Conciliation Act. In relation to projects in the private sector, the process of appointment depends on the internal rules developed by project sponsors. 11, 2011. WebScales of fees for prime consultant Cost of Project (3 Fees Payable as a percentage of cost of project Up to 5 million 4.73% Next 10 million or part thereof 450% Next 15 million or 4.25% Next 45 million or part thereof 4.00% Next 75 million or part thereof 3.50% Next 150 million or part thereof 3.00% Next 200 million or part thereo! Usually, the state where the construction contract is implemented or ought to be performed will determine the high court that will have jurisdiction over the contractual dispute. WebFee is to be negotiated subject to a minimum of N50,000=. Foreign engineering consultants and firms can only be engaged when the required services are rendered in collaboration with firms licensed to provide such engineering services in Nigeria (. The relationships between employers, contractors and subcontractors are typically governed by ordinary principles of contract law. In most contracts for the construction of process plants, liability is usually capped at 25% of the contract price. Controversy is sprouting again among building sector professionals on the scale of fees being charged in the industry. Basis of Professional Charges for Consulting Services 4.3. Other debt funding arrangements include overdraft facility, revolving credit facility, debt capital markets and letters of credit. The Borno state government has commenced an Owner Occupier scheme for 2,787 housing units in the state. Parties generally have a choice over the applicable arbitration rules. During 2020 and 2021, parties have increasingly sought to declare force majeure events caused by COVID-19. In this revision, the starting band was increased from N250,000.00 to N5 Million. The EIA Act specifies different types of projects in respect of which a mandatory study must be conducted. Compliance with the PPA awaited Petroleum Industry Bill into law contractor has obligation. 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