Bangladesh is a common law jurisdiction. It has a written constitution. Statutes are enacted by the Parliament. Executive authorities and statutory corporations can make by-laws to the extent authorised by the Parliament. The laws are applied and interpreted by the courts. Judgments of the higher courts, namely, the Appellate Division and the High Court Division of the Supreme Court of Bangladesh, are binding on the lower courts.

Statutory obligations vary depending on the nature and location of the construction and engineering project.

The key statutes governing the construction and engineering projects include: the Contract Act 1872, Building Construction Act 1952, Town Improvement Act 1953, Environment Conservation Act 1995, Building Construction Rules 1996, Natural Water Bodies Protection Act 2000, Private Residential Project Land Development Rules 2004, Public Procurement Act 2006, Public Procurement Rules 2008, Dhaka Metropolitan Building (Construction, Development, Preservation and Demolition) Rules 2008, Real Estate Development and Management Act 2010, Acquisition and Requisition of Immovable Property Act 2017, Bangladesh National Building Code 2020, and the Environment Conservation Rules 2023.

The Public Procurement Act 2006 (“PPA”) and the Public Procurement Rules 2008 (“PPR”) govern the procurement of construction works and services using public funds by the government or its ministries, departments, statutory bodies, etc. Construction works include all works associated with the construction, reconstruction, site preparation, demolition, repair, maintenance or renovation of railways, roads, highways, buildings, infrastructure, structures or installations, or any construction work relating to excavation, installation of equipment and materials, decoration, etc. Services include procurement of goods or works relating to the operation and maintenance of construction works, and any third-party services, including security services.

In order to promote foreign investment in the infrastructure sector, the government of Bangladesh encourages implementation of large-scale public infrastructure projects, such as railways, roads, seaports, airports, expressways, flyovers, economic zones, power plants, etc, through public-private-partnerships (PPP). PPP construction projects and government-to-government partnership projects are governed by, among others, the Public Private Partnership (PPP) Act 2015, Policy for Implementing PPP Projects through Government to Government (G2G) Partnership 2017, Procurement Guidelines for PPP Projects 2018, Guidelines for Unsolicited Proposals 2018, National Priority Project Rules 2018, Rules for Public Private Partnership Technical Assistance Financing 2018; and the Rules for Viability Gap Financing for Public Private Projects 2018.

The key statutory obligations include obtaining necessary permits, licenses and approvals from the relevant regulators for the construction work. The construction work must be carried out in a manner that complies with the Bangladesh National Building Code 2020 (“BNBC”) which is a comprehensive legislation providing for the minimum standards for design, construction, quality of materials, use and occupancy, and maintenance of all buildings in order to ensure the health and public safety.

(a) health and safety;

Health and safety

The BNBC, Part 7, sets out the safety measures to be taken during construction of a building or any other structure. The contractor or subcontractor is required to ensure the safety of their personnel or workmen engaged in building construction through a well-planned and well-organized mechanism and by adhering to the measures required under Part 7 of the BNBC in each stage of construction work.

Fire safety

Part 4 of the BNBC contains general requirements of fire protection, precautionary requirements, means of egress, equipment, in-built facilities and standard installations required for firefighting. The BNBC aims to safeguard life and property in the use or occupancy of buildings or premises from the hazards of smoke, fire and explosions.

Building safety

For the purpose of ensuring building safety, the BNBC, Part 5, prescribes standard specifications in respect of the materials to be used in the construction work. In case of any deviation from the standards set out in the BNBC, an approval for the use of any new or alternative materials is required to be taken from the regulator. Use of any alternative or new materials is approved if it can be shown that the proposed materials are satisfactory for the purpose intended and at least equivalent of that required by the BNBC in respect of quality, strength, effectiveness, fire resistivity, durability, safety, maintenance and compatibility.

(b) environmental issues;

The construction of projects requires obtaining environment clearance certificate from the department of environment under the Bangladesh Environment Conservation Act 1995 and the Environmental Conversation Rules 2023. Carrying out an environmental impact assessment (“EIA”), preparation of an EIA report as per the guidelines of the department of environment by engaging an enlisted environment adviser, and submission of the EIA report to the department of environment are mandatory for the issuance of the Environmental Clearance Certificate. EIA is a formal study process which is used to predict, foresee and examine environmental consequences of the proposed project. EIA involves the study of the probable changes in the physical and biological as well as socio-economic environment which may result from the proposed project, and a suitable environmental management plan to minimize adverse effects on the environment.

The BNBC, part 7, Chapter 1 requires the parties to identify at the planning stage the probable impact on the environment and adopt preventive corrective measures.

(c) planning;

Construction planning aims to identify and develop various stages of project execution on site. Planning evolves out of the objectives of project and requirements of the final completed constructed facility. These objectives can relate to the final constraints, cost considerations, quality standards, safety standards as well as environmental and health considerations. Construction practices are required to satisfy these objectives during construction phase of the project. Having established objectives of the construction phase, planning determines the processes, resources (including materials, equipment, human and environmental) and the monitoring system to ensure that the practices are appropriately aligned.

The BNBC, Part 7, Chapter 1 sets out the minimum standards for construction planning to be complied with covering the construction responsibilities and practices in building sites, safe storing, stacking and handling of materials, equipment and other resources, and safety of personnel during construction operations.

In a construction work, the terms of contract between the owner and the contractor, and between a consultant and the owner, are required to be clearly defined and set out in writing. The terms of the contract are required to be in compliance with the relevant laws.

The owner or the contractor, as the case may be, is required to obtain approval of construction plan or design and approval of suitability for habitation before commencing any construction work. These approvals ensure that the construction complies with legal requirements, development plans and safety standards. According to Chapter 2 of the Dhaka Metropolitan Building (Construction, Development, Preservation and Demolition) Rules 2008, obtaining the aforesaid approvals is a mandatory, especially in the Dhaka city.

(d) employment; and

All contractors are required to comply with the Bangladesh Labour Act 2006 (“BLA”). The workforce employed in the construction sector falls within the definition of “worker” under the BLA which entitles them to various statutory benefits and safe working conditions.

(e) anti-corruption and bribery.

Generally, making payment of any gratification or providing any valuable item to a public servant or abetting such actions in order to influence the public servant to do or not to do any official act or to show favour or disfavour to a person in an official act is an offence. Thus, a tenderer or contractor or consultant should ensure that neither it nor any member of its staff, or any other intermediaries working on its behalf, commit or abet commission of the above offence.

In case of procurement of construction works and services by the government or its ministries using public funds as per the PPA and PPR, the procuring entity is required, during the process of procurement and execution of contract, to ensure that its officers and members of staff do not engage in any corrupt, fraudulent, collusive or coercive practices. Similarly, a tenderer or a consultant or contractor is required to abide by the code of ethics and ensure that neither it nor any members of its staff, or any other intermediaries working on its behalf, engage in any corrupt, fraudulent, collusive or coercive practices.

In case of PPP construction projects and government-to-government partnership projects, the PPP contract may contain clauses in relation to the health and safety, environmental issues, planning, employment, and anti-corruption and bribery conferring specific obligation on a party, owner or contractor.

The permits, licences and other documents that parties need before starting work, during work and after completion of a construction project depend on the nature and scope of the project. Usually, the following permits are required: land use certificate, large and specialised project permit, construction permit and occupancy certificate. No-objection certificates or clearances from various regulators are also required, such as local government, department of environment, department of fire service and civil defence, power distribution company, water development authority, water supply and sewerage authority, civil aviation authority of Bangladesh, Bangladesh telecommunication regulatory commission, etc.

Construction contracts usually contain clauses imposing responsibility on the employer or the contractor to obtain permits, licences and other documents before starting work, during work and after completion of a construction project.

Typically, construction contracts impose responsibility on the employer to obtain permits, licences and other documents which are required to be obtained in the name of the employer, for instance, construction plan approval, environmental clearance, etc. The contractor is required to obtain permits, licences and other documents which are required to be obtained in the name of the contractor, for instance, an import permit for importing the contractor’s equipment. The employer assists the contractor in obtaining necessary permits, licences and other documents required to be obtained in the name of the contractor.

There are various types of penalties for non-compliance with the requirements regarding permits, licences and approvals, such as, removal or alteration of unauthorised construction, monetary penalty, imprisonment, payment of compensation, etc.

Tort law or a law of extra-contractual obligations is recognised in Bangladesh. The principle of duty of care under the law of tort governs negligence. Construction contracts usually contain provisions making the contractor liable for loss or damage caused by gross negligence, fraud, criminal or wilful misconduct of the contractor.

The typical parties involved in a construction and engineering project are the employer who is also referred to as the owner, the contractor, sub-contractor, financier and the designer.

Employer

The owners of construction projects act as employers of the construction projects. The owners or employers can be individuals, private corporations, government ministries, or any offices or directorates or departments or divisions under a ministry, or corporations, statutory bodies, local governments, or any other organisations.

Contractor

The construction contractors can be individuals, proprietorships, partnerships, companies, corporations, joint ventures or consortiums. The contractors may be either local or foreign, or a joint venture or consortium of local and foreign parties.

Subcontractor

Subcontractors can be individuals, proprietorships, partnerships, companies, corporations, joint ventures or consortiums. Subcontractors may be either local or foreign, or a joint venture or consortium of local and foreign parties. Typically, the scope of works of a subcontractor does not go beyond the scope of works of the main contract between the employer and the contractor.

Financier

Banks, financial institutions, non-banking financial institutions act as financiers in a construction project. These financiers can be local, foreign, or a combination of both. Bilateral loans and syndicated loans are common. There are also construction projects that are self-financed or financed by private entities.

Designer

Architecture and engineering consultant companies or firms act as designers in construction projects. A designer may be either local or foreign, or a joint venture or consortium of local and foreign parties.

In the public sector, the procurement methods include open tendering method (OTM), limited tendering method (LTM), two-stage tendering method, request for quotation method and direct procurement method. OTM and LTM are the most popular methods of procurement of construction works and services in Bangladesh.

The engineering, procurement and construction (EPC) model is the dominant contract model, where the contractor performs all aspects of the work necessary to provide a completed operational construction project within the pre-agreed contract price and completion time.

A PPP contract is a long-term agreement between a government agency and a selected private partner. Prior to or after signing the PPP contract, the selected private partner incorporates a project company. Once the company is incorporated, all rights and obligations of the private partner are assigned to the project company. Under the PPP arrangement, the private partner usually assumes the responsibility of financing, constructing, and operating the PPP project. In return, they receive payments from the government and/or collect charges, levies or fees from the users of the PPP project for a certain period.

In case of PPP construction projects and government-to-government partnership projects, PPP Act allows parties to execute PPP contracts based on the mutually agreed terms and conditions. The PPP Act allows parties to PPP construction projects and government-to-government partnership projects to include any of the following matters in the PPP contract: modality of the project, term of the PPP contract, technical specification and compliance standard, environmental and security requirements, performance indicators and date of completion, expenditure recovery mechanism through collecting levy and strategy for its adjustment,  construction and operation bond, insurance, acceptance test and method, rights and obligations of the parties and risk allocation, modality and amount of government financial participation, transfer of assets, if any, at the end of the PPP contract, post transfer confirmation letter and method, submission of report, supervision strategy of the contracting authority, ownership of assets, immediate steps during natural disaster, governing law, provision for arbitration, rights over project area, security interest, etc.

There are various construction models. Depending on the nature of the project, parties can adopt any one of the models. Some common construction models include:

• build-operate-transfer (BOT) contract, under which the private party is responsible for designing, constructing, and operating the project during the contracted period and thereafter transferring the project back to the government agency (ie, the employer);
• build-own-operate (BOO) contract, under which the private party finances, builds, owns and operates the project and the government agency purchases the goods and services produced by the project;
• build-operate-lease-transfer (BOLT) contract, under which a government agency gives a concession to a private entity for designing and building a project, owning it, leasing it to the government agency and subsequently transferring the ownership of the project to the government agency upon expiration of the lease;
• design-build-operate-transfer (DBOT) contract, under which the private party is responsible for designing, constructing, financing, and operating the project for the concession period and thereafter transferring the project back to the government agency; and
• operate-maintain-transfer (OMT) contract, under which the private party operates the project, ensures maintenance and provides training before handing over the project to the government agency.

The use of standard contracts is not mandatory in Bangladesh. Parties may adopt any standard contract they consider appropriate for the project. Standard contracts published by the International Federation of Consulting Engineers, known as FIDIC, and the Engineering Advancement Association of Japan (ENAA) are often used for construction projects. Where parties want to deviate from the standard contracts, they agree to special conditions of contact which form a part of the contract.

The procurement of construction works and services using public funds by the government or its ministries, departments, statutory bodies, etc. are required to be undertaken in compliance with the PPA and the PPR. The PPA and the PPR contain provisions relating to, among others, preparation of tender proposal, constitution of various committees, procurement approval procedure, publication of notification of award, qualifications of tenderers, non- discrimination among tenderers, procedure of making complains regarding the procurement process, methods of procurement, evaluation of tender proposals, negotiation and signing of contract, etc.  These laws aim to ensure competition, fairness and transparency throughout the procurement process.

PPP construction projects and government-to-government partnership projects are required to be undertaken in compliance with the laws applicable  to such projects discussed under question 2 above.

Architecture and engineering consultant companies or firms typically act as consultants in construction projects. A consultant may be either local or foreign, or a joint venture or consortium of local and foreign parties.

Under a build-only model, the consultant or designer engaged by the employer is responsible for the design of the construction works. The contractor is responsible for implementing the construction works as designed by the designer. The designer bears the responsibility for any defects in the design.

Under a design-and-build model, the contractor is responsible for designing as well as implementing the construction works as per the design. Under this model, the contractor can make changes to the design to make the construction works fit for their purpose. The contractor bears the responsibility for any defects in the design and the construction works.

Bangladesh Public Procurement Authority, formerly the Central Procurement Technical Unit, is authorised to issue and publish on their website standard documents to be used by the public sector procuring entities. Depending on the nature of a specific procurement requirement, procuring entities may adjust the standard form, provided that the adjustments do not contradict the provisions of the PPA and PPR. In case of public sector construction works including the PPP construction projects and government-to-government partnership projects, usually the invitation to tender or request for application for engagement of a consultant contains application form to be used by the tenderers for making applications or submitting tenders and contract agreement form to be signed by the selected tenderer.

Subcontracting is permitted. It is common for construction contracts to contain provisions allowing the contractors to subcontract all or parts of their works. The subcontractors are engaged by the contractors in compliance with the requirements set out in the contract. It is also common for the contractors to engage subcontractors nomi­nated by the employer. No contractual relation­ship exists between the employer and the sub­contractor. A subcontractor is an agent of the contractor. A subcontractor does not have any right to make direct claims against the employer.

Banks, financial institutions, non-banking financial institutions act as financiers in a construction project. These financiers can be local, foreign, or a combination of both. Bilateral loans and syndicated loans are common. There are also construction projects that are self-financed or financed by private entities.

A financier is entitled to receive security for securing the loan and interest. A loan is usually secured by hypothecation of receivables from the construction project, mortgage of the project land, pledge of shares of the shareholders of the borrower company, corporate guarantee of the corporate shareholders of the borrower company and a charge over borrower’s assets and properties.

A financier or its onshore security agent, where the financier is a foreign bank or institution, is entitled to enforce security upon occurrence of an event of default or breach of terms of the loan agreement.

Construction contracts contain provisions requiring the contractor to furnish various bank guarantees for the amounts specified in the contract in favour of the employer. A bank guarantee is considered as a separate contract between the relevant bank and the employer, and independent from the construction contract. The bank guarantees include:

• performance bank guarantee for the due performance of the contract;
• advance payment guarantee to secure the advance payment made by the employer;
• payment bank guarantees to cover various payments made in relation to mobilisation of equipment, supply of materials, etc;
• corporate bank guarantee provided by the contractor or its shareholders; and
• retention bank guarantee to cover the defect liability period.

Construction contracts set out the time for how long the bank guarantees are to be maintained. In other words, construction contracts set out the dates for release of the bank guarantees.

There is no specific legislation relating to payment in the industry. Construction contracts contain the terms, pro­cedure and schedule of payment.

Usual payment terms in construction contracts include:

• payment of an agreed percentage of advance upon execution of the agreement;
• payment of an agreed percentage upon submission of design;
• payment of an agreed percentage upon mobilisation of contractor’s equipment, personnel and construction materials at the construction site;
• payment of an agreed percentage upon satisfactory completion of specified test work; and
• payment of an agreed percentage upon successful completion and delivery of the construction work.

There is no law dealing with pay-when-paid clauses (i.e. clauses permitting payment to be made by a contractor only when it has been paid by the employer). In the absence of a prohibition, a sub-contract may contain a pay-when-paid clause that will allow the contractor to pay the sub-contractor when the contractor is paid by the employer.

Construction contracts usually contain a clause requiring the contractor to furnish retention bank guarantee in favour of the employer. The purpose of furnishing the retention bank guarantee is to ensure that after receiving the contract price the contractor will continue to fulfil its contractual obligations during the defect liability period. The date of releasing the retention bank guarantee is the date when the defect liability period ends.

Alternatively, a construction contract may entitle the employer to withhold a proportion from the periodic payment to the contractor, for instance 5 to 10 percent of each invoice amount, and to retain the same until the defect liability period is over. Once the defect liability is over, the retention money is paid to the contractor, subject to any deductions for defective works.

Construction contracts commonly contain liquidated delay damages provisions and these are upheld by the courts. In the event of delay, the employer can claim liquidated damages, which is a pre-agreed amount of damages required to be paid by the contractor to the employer for the delay. The contract contains the rate of and the maximum amount of liquidated damages. Liquidated delay damages provisions are recognised by section 74 of the Contract Act 1872.

Parties are able to exclude or limit liability contractually. Limitation of liability clauses usually state that the contractor shall not be liable to the employer whether in contract or tort or otherwise for any indirect or consequential loss or damage or loss of profits, and provide an upper limit of the aggregate liability of the contractor to the employer. Limitation of liability clauses may provide that the limitation of liability shall not apply to the liquidated damages or to the cost of repairing or replacing defective equipment. Construction contracts contain an upper limit which can be claimed as liquidated damage, for instance 10% of the contract price. Limitation of liability of the parties in respect of compensation for breach of contract is recognised in sections 73 and 74 of the Contract Act 1872.

Some liabilities that cannot be contractually excluded include liabilities arising from fraud or wilful misconduct, personal injury or death caused by the negligence or breach of duty, breach of statutory obligations relating to safety regulations or environmental laws.

Freedom of contract is recognised in Bangladesh and there is no legal restriction on termination. Construction contracts usually provide for numerous circumstances for termination, including the right to terminate for convenience. Additionally, a party has a common law right to terminate a construction contract if the other party commits a repudiatory breach of the contract, i.e. a breach which is so serious that it shows an intention of the defaulting party not to be bound by the contract.

The construction contract must provide expressly for termination for force majeure, a clear definition of force majeure, i.e. events which will constitute force majeure, and consequence of force majeure.

According to the doctrine of privity of contract, a party who is not a party to a contract cannot take advantage of any rights under the contract. Unless a construction contract provides any right to a third party, a third party does not have any enforceable right under the contract. Consequently, funders, purchasers and renters enter into separate contract for protecting their rights in relation to a construction project.

Construction contracts typically contain strict provisions governing notification of claims for additional time and money which act as conditions precedent to bringing claims. Bangladesh courts recognise such notices as conditions precedent.

The insurances that the parties are typically required to hold include:

• all risk insurance policy covering physical loss or damage to the construction work including all materials and goods on site occurring prior to completion of the work and during the defect liability period;
• cargo insurance during transport policy covering loss or damage occurring while goods are in transit from the destination to the construction site;
• third-party liability insurance policy covering vehicles used by the contractor in connection with the execution of the contract;
• workers’ compensation insurance policy covering any death or personal injury of the workmen appointed by the contractor; and
• employer’s liability insurance policy covering the liability towards the employees engaged in the construction work.

The construction contract usually specifies the duration for each type of insurance.

Construction contracts usually contain a dispute resolution clause providing for the agreed forum for the resolution of disputes. In the absence of a dispute resolution clause, Bangladesh courts will have jurisdiction over the construction and engineering disputes and the same will be resolved through litigation by competent Bangladesh courts. The Bangladesh court within the local limit of whose jurisdiction the office of the defaulting party is situated, or the cause of action wholly or partly arises, or where the construction project is situated, will have jurisdiction.

If parties include an arbitration clause in the construction contract conferring jurisdiction on an arbitration tribunal, the jurisdiction of the Bangladesh courts over disputes arising from the contract can be excluded. An arbitration clause usually provides for the arbitration rules applicable to the arbitration, the seat of the arbitration, the composition of the arbitration tribunal, the language applicable to the arbitration, etc.

Arbitration is the most common alternative dispute resolution mechanism in Bangladesh. Arbitration is regulated by the Arbitration Act 2001 (“the Arbitration Act”).

Bangladesh courts are supportive of arbitration. The Arbitration Act has been enacted to facilitate arbitration and it governs both domestic and international arbitration.

Arbitration awards, both domestic and foreign, are enforceable in Bangladesh. Enforcement of an award can take two years or even longer.

When the contract is in writing, the limitation period for commencing disputes in Bangladesh is six years from the date of the breach of the contract. Each dispute requires its own analysis to determine the appropriate date of breach.

There is no provision in the Arbitration Act restricting multi-party arbitration. In relation to consolidation of proceedings and concurrent hearings, section 28 of the Arbitration Act states that parties to an arbitration agreement shall be free to agree to the consolidation of arbitration proceedings with any other arbitral proceedings, as well as hold concurrent hearings on agreed terms. The arbitral tribunal does not have the power to consolidate the proceedings or hold concurrent hearings unless the parties agree to confer such power on the tribunal.

The apportionment of liability between defendants will depend on the extent of each party’s involvement and contract provisions.

There is no legal provision prohibiting inclusion of net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses) in a contract.

Where the contractor is a joint venture, consortium or other unincorporated grouping of two or more persons, the contract usually provides for joint and several liability of the contractor to the employer and may also provide for the apportionment of the liability.

Major challenges include acquisition of land, exorbitant land price, unexpected increase in material costs and delay in delivering construction site to the contractor by the employer.

The government is prioritising and promoting investments in large-scale public infrastructure projects, such as railways, metro rail systems, roads, seaports, airports, expressways, flyovers, economic zones, power plants, etc, to boost economic growth. The government encourages foreign investment to implement large-scale public infrastructure projects through public-private-partnerships.

Large-scale public infrastructure projects, such as railways, metro rail systems, roads, seaports, airports, expressways, flyovers, economic zones are currently attracting the most investment in Bangladesh.

Technological advancements will  affect the construction and engineering industry in Bangladesh by reshaping how construction projects are planned, designed and implemented as well as through innovative construction solutions.

Supply chain issues can result in delay in completion of construction works within the schedule time which may lead to disputes regarding liquidated damages and claims for compensation. The escalation of material costs may cause the contractor to invoke price variation clauses of the contract for the purpose of increasing the contract price leading to potential disputes. Employers and contractors can discuss these issues with a view to agree on an appropriate level of risk allocation commercially acceptable to both parties.