Foreign Projects Present Unique Rewards, Risks

There are real misconceptions about the risks and rewards associated with foreign projects, according to Steve Hisaka, a XL Design Professional recommended attorney with Hisaka, Ayabe & Goto in Honolulu. Hisaka, who has 17 years of experience helping clients conduct business overseas, says that those misconceptions can cause design professionals to pass up good business opportunities -- or land themselves in a messy overseas situation.

Many design professionals see working overseas as very low risk, said Hisaka. They perceive it as a "high gain type of business" where they can make a lot of money and then return to the safety of the United States, virtually free of future liabilities. What they fail to see, says Hisaka, is what he calls "the rich, ugly American syndrome."

"People around the world really do have a stereotype that we're all rich or have insurance, and that if you have a problem, you can always sue these American companies," he said.

And those lawsuits can easily follow an American design firm back home, under the international legal principle of comity.

"An architect or engineer from New York who does work in Chicago can be sued in Chicago and a judgment can be entered by the court there," explained Hisaka. "The plaintiff can take the judgment back to New York and enforce it. Under the U.S. Constitution, that's called the full faith and credit clause.

"Among nations of the world, there is a similar principle, called comity. This means that one country will enforce a judgment rendered in another country."

There are only minimal requirements for comity to apply, noted Hisaka. There must be proper notice of the hearing given to all parties, the hearing must comply with the laws of the country where it is held and the judicial process must be free of fraud.

How can U.S. design firms take on foreign projects while minimizing liabilities? Hisaka recommends considering the following questions before engaging in any foreign project:

• Is the project indeed in a foreign country? Locales such as Puerto Rico, Guam and parts of Samoa are U.S. possessions or commonwealths. Projects in such places, as well as Canada, will typically be covered under your standard insurance policy language and do not require special endorsements.
• Is it a U.S. Government contract? Federal contracts will specify the type of laws in effect and the locales where disputes will be handled. Generally these projects are lower risk than most foreign work -- almost as if you are practicing in the United States.
• What is your experience doing work overseas? First-timers should seriously consider a joint venture with a design firm in the foreign country.
• Are you fully insured? Call your insurance broker to make sure you are covered for professional liability, general liability, medical care, workers compensation, etc.
• What type of contract do you need? You'll want many of the same indemnity clauses and language recommended domestically, including ADR and LoL clauses. And of course, you'll want the contract in English. Beyond that, get the aid of a local expert attorney familiar with the country's laws.
• Which laws will apply? Try to see that any disputes will be decided according to the laws -- and by the courts -- of your home state. An alternative is arbitration by an impartial tribunal.
• What conventions and treaties apply? There are many international agreements that specify the handling of legal disputes. The Convention on the Recognition and Enforcement of Foreign Arbitral (arbitration) Awards, for example, has been signed by approximately 80 countries. There is also a treaty between the U.S. and various Latin American countries to enforce arbitration agreements.
• What building codes and standards of care apply? Check foreign requirements regarding applicable certifications and codes. Whenever possible, have your contract specify that your work will be done according to the codes and standards of care in the United States.
• Do you need a business license? Many countries require design firms to obtain licenses and their employees to obtain working visas in order to conduct business within their borders.
• How will you be paid? If possible, specify that payment be made in U.S. dollars and deposited into a reputable bank that can wire transfer the funds to your U.S. bank account.
• What taxes must be paid? In some cases, you may have to pay taxes in both the foreign country and the United States.

Hisaka says that while foreign projects can present excellent business opportunities, foreign business practices can be very alien. In some countries, for example, paying money to government and business officials "under the table" is typical and accepted. Yet it can also be against U.S. Federal law. He warns all design firms to get expert assistance and to proceed with caution.