91ÊÓƵ

In today’s construction market, parties increasingly arrive at the table with specific suppliers and partners already in mind. Whether driven by brand preferences, prior relationships, unique product requirements, owner requests, or cost considerations, new suppliers can play an important role in project delivery. But when a key supplier is selected without sufficient evaluation, the project may face unexpected challenges.

Though there are always risks with new or unknown suppliers, these risks are amplified when the supplier is located outside the United States. While international partners may provide access to unique products, specialized outputs, or favorable pricing, these choices can also create practical and legal challenges that impact construction timelines and may complicate dispute resolution.

Enforcement and overseas suppliers

Delayed deliveries, defective materials, or warranty disputes can create significant project impacts regardless of where a supplier is located. However, those issues often become substantially more difficult, and more expensive, to resolve when the supplier operates abroad.

For example, a dispute involving a foreign supplier may require formal service of legal process in another country. Depending on the jurisdiction, service may be governed by international treaties like the Hague Service Convention, which may take six months or more just to complete service and begin litigation.

Once litigation is under way, obtaining evidence from a foreign supplier can involve additional hurdles, like coordination with foreign counsel, translation requirements, and compliance with another country’s discovery rules. Depositions, for example, may require substantial advance planning, and the production of documents may be limited by local laws or practical barriers.

Even after successfully obtaining a judgment, a prevailing party may face another obstacle: enforcement. A judgment entered by a U.S. court does not automatically guarantee recovery against a foreign entity. Depending on the country involved, the judgment may require separate recognition proceedings, creating additional expense, uncertainty, and delay.

Practical steps to reduce risk

Fortunately, owners and contractors can take several proactive measures to reduce supplier-related exposure.

First, project teams should carefully consider whether a preferred supplier has an established track record in the United States. Contractors should not hesitate to recommend suppliers with whom they have successfully worked in the past and whose performance history is known. Owners, in turn, should evaluate whether the benefits of a specific supplier outweigh any additional risks of unfamiliar or foreign vendors. Any chance for a party to seek trusted referrals from a proposed supplier could be invaluable.

Second, purchase orders, supply agreements, and supplier contracts should be evaluated before execution. Early legal review can help identify provisions that pose unnecessary risk, including unfavorable warranty limitations, foreign choice-of-law clauses, foreign venue requirements, shortened claim periods, or restrictions on available remedies.

Third, project participants should consider negotiating contract language that improves the enforceability of rights against the supplier. Depending on the circumstances, this may include provisions that include:

• U.S.-based service of process agents;
• consent to jurisdiction in U.S. courts;
• clear application of U.S. law;
• designating a currency and/or establishing currency risk measures;
• express warranty obligations and response timelines;
• bonding requirements; and
• clear remedies for delays, defects, or nonperformance.

While no contract provision eliminates all risk, thoughtful drafting can significantly improve a party’s ability to enforce its rights if problems arise. Parties may also consider using a standardized agreement meant for international application, like those published by the International Federation of Consulting Engineers (FIDIC).

Looking ahead

New and unique suppliers can provide important project benefits, expand business opportunities, and increase the value of a project. Nevertheless, unknown partners can also introduce unique risks, particularly when those suppliers operate outside the United States. Before committing to any supplier, all parties should evaluate the supplier’s pricing and products as well as the practical realities of dispute resolution for warranty claims or unsatisfactory performance.

A modest investment in due diligence and contract review at the procurement stage can help avoid substantial costs, delays, and uncertainty later. As with many construction disputes, the most effective solution is often identifying and addressing the risk before the project team breaks ground.

Mario Nicholas is a Stoel Rives LLP partner and a member of the construction and design group in the firm’s Portland office. Contact him at 503-294-9510 or [email protected].

Jack Branscome is a Stoel Rives LLP associate and a member of the construction and design group in the firm’s San Diego office. Contact him at 858-602-4910 or [email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither of the authors nor the 91ÊÓƵ guarantees the accuracy or completeness of any information published herein.