professional fees in construction projects in nigeria

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(. Construction projects are generally not exempt from VAT, and are liable to VAT at 7.5%. A foreign contractor that will be executing a project in Nigeria must incorporate a local subsidiary in Nigeria through which it will implement and carry out the construction contract (. 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. In this revision, the starting band was increased from N250,000.00 to N5 Million. In February 2021, at commissioning of a 1.12 MW Captive Solar Hybrid Power Plant at the Abubakar Tafawa Balewa University, Bauchi which was executed under the Energizing Education Programme (EEP), the FGN stated that Nigeria intends to have 30% of its electricity supply from renewables by the year 2030. The Borno state government has commenced an Owner Occupier scheme for 2,787 housing units in the state. The slow implementation of government budgets, however, has been a perennial problem in Nigeria. 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. In July 2012, the Central Bank of Nigeria issued the Sustainable Banking Principles under which banks and other financial institutions undertook to integrate environmental and social considerations into business decision making. During 2020 and 2021, parties have increasingly sought to declare force majeure events caused by COVID-19. Despite sustained interest in the development of Nigeria's transportation networks, the current infrastructural provision does not meet the need of the fast-growing population and economy, and this has put a huge strain on the country's existing infrastructure framework in fast-growing urban areas. The entitlement of consultants to recovery from third parties in respect of additional costs or delays depends on the terms of their contracts and appointments. Establishing a contract-based electricity market. The most common forms of dispute resolution in Nigeria are litigation and arbitration. Professional fees in building projects Structural engineering fees Rp200,000 to Rp 300,000 per square metre MEP (mechanical, electrical and plumbing) design fees Rp120,000 per square metre Quantity Surveyors fees Rp60,000 per square metre To be excused from performing its obligations whilst the force majeure event lasts, the party seeking to rely on the force majeure provision would typically be required to comply with additional contractual requirements to the satisfaction of the other party, including reporting and damage mitigation requirements. The Abuja Metro Rail, the Abuja-Kaduna Rail and the 327 kilometre Itakpe-Ajaokuta-Warri Rail projects were completed in 2020. Basis of Professional Charges for Consulting Services 4.3. Contracts can also include clear definitions of the standard of performance expected and penalties for not meeting the standard. Parties to construction contracts typically agree the inclusion of provisions that permit the contract to continue, on the occurrence of events or circumstances that are not within the reasonable control of the parties and that could have a material adverse effect on their ability to perform their respective obligations. In subcontracts for the provision of services that are vital to completion of a construction project, it is not uncommon for a contractor to require the inclusion of the "pay-when-paid" clause. The parties through their project documents usually provide for a dispute resolution mechanism to be adopted in the event of dispute. Currently leading the team advising a US company in connection with the development of a 30MW Coal fired power plant in Nigeria. Construction contracts typically include caps on liability. There are usually no restrictions on the project sponsor's or the lenders' right to terminate the contract in the event of the contractor's bankruptcy or insolvency, unless otherwise stated in the contract. 11, 2011. The REA's mandate is to increase electricity access to rural and underserved communities through public and private sector engagement. Advised NG Power-HPS Limited in connection with the acquisition of majority shares in First Independent Power Limited. 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. Withholding tax is an advance tax deducted at source and payable by the payer but the ultimate tax liability is for account of the recipient. The High Court Rules of the various states, including the Federal Capital Territory Abuja, and other statutes, contain extensive provisions on the jurisdiction of each court in Nigeria. Approval of project documents by lenders. None of these contract forms are mandatory. Table of Professional Charges 4.5. 19, 2009. The two major funding models for local and international projects in Nigeria are: Equity, including mezzanine finance. Put and call options (that is, the right of the equity financiers or sponsors to compel the government to repurchase the assets or shares of the project company in the event that the project is expropriated or faces significant local risks). Draft EIA to be carried out and a report submitted to the DRP at the end of the project conceptual design and will form the basis for approval by the DPR of the detailed engineering design. Both equity and debt financing will typically be used in the same project usually at a ratio of 70% debt to 30% equity. N60m (estimated project cost) multiplied by a minimum of 7.5% (scale of fees for new projects). Basis of Professional Charges for Consulting Services 4.3. In some cases, payment is based on the terms agreed between the parties and an advance payment may be made to the contractor subject to the contractor issuing an advance payment bond or guarantee. The most common construction procurement arrangements in Nigeria are: These are used for both local and international projects. Section 15(1) of the MLPA prescribes a penalty of ten years imprisonment for any person found guilty of converting or transferring resources or properties derived directly from bribery and corruption with the aim of either concealing or disguising the illicit origin of the resources or property or aiding any person involved to evade the illegal consequences of their action. Controversy is sprouting again among building sector professionals on the scale of fees being charged in the industry. There is also no compulsory levy to fund local infrastructure. In addition to the EIA Act, the Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN), which apply specifically to the oil and gas industry, requires an EIA to be carried out when constructing certain oil and gas facilities, including oil and gas pipelines, crude oil production facilities, tank farms, hydrocarbon processing facilities, product depots, waste treatment/disposal facilities and so on. The structures explained above also apply to international projects. In this revision, the starting band was increased from N250,000.00 to N5 Million. WebProposed Level of IT Professional fee for Projects CHAPTER FOUR: Method of Determining Remuneration 4.1. A Q&A guide to construction and projects law in Nigeria. 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 collapse in oil prices and the pandemic plunged the country into recession in 2020. 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: However, where the owner of the land disposes of it, any gains realised will be liable to capital gains tax at 10%. 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). 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, by law, parties are unable to cap liability arising from death and personal injury. The modes of appointment of construction professionals in Nigeria vary between the public sector and the private sector. The contractor is, therefore, required to comply with health and safety regulations relating to employees that work in certain areas of the project or that operate certain machinery wearing protective clothing. In other cases, the overall cap does not exceed the amount of the contract price. Webprofessionals in the Built Industry to develop an harmonised scale of fees. The interest payment on a loan to fund a construction project is an allowable deduction before arriving at the taxable profits. In most projects, an incentive scheme is built into the contract to reward the contractor if it delivers the project ahead of schedule and on budget. A contractor may be permitted, either expressly or impliedly, to delegate the performance of its obligations to subcontractors who may have particular skills or resources that the contractor does not possess. Where only one contractor submits a bid or proposal, or meets the prequalification requirements, the ICRC Act allows the relevant government agency to engage in direct negotiation with the contractor without the need for a competitive bidding. It is not clear whether a common law mechanic's lien will apply to construction projects where the contractor is unpaid. Signed a six-year, NGN1.15 trillion (about USD3.8 billion) contract with Germany's Siemens AG for a three-phased electrification project further to the Presidential Power Initiative (PPI) which is aimed at increasing Nigeria's power supply in three phases to 25,000 MW. Construction & Engineering Laws and Regulations Nigeria 2022-2023. 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. 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 (. Parties to construction contracts in Nigeria typically negotiate their contracts on the basis of a draft prepared by their advisers including lawyers. 19, 2011. 30 days after execution where an instrument is liable to an ad valorem rate. f) PSGS 6: Letting/Real Estate Brokerage/Agency. The project owner typically takes the following risks: Risk of ground conditions, including any archaeological discoveries or ionisation and contamination of the soil. Recent projects include the: 67.32KW Solar Hybrid Mini Grid at Oloibiri, Bayelsa State; 234KW solar hybrid mini grid power plant in Shimankar Community, Shendam Local Government. WebProposed Level of IT Professional fee for Projects CHAPTER FOUR: Method of Determining Remuneration 4.1. The transaction, which is valued at USD311.2 million, involved the sale of three power stations by the Rivers State Government to the investor. Fee proposed 10% of cost of Annual Services. In addition, parties can execute a direct agreement with the third party which will contain terms such as step-in rights provisions to enable the third party step in and assume the obligations and rights of the project sponsor under the contract where a certain agreed event occurs. 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. Professional Bodies in Nigerian Construction Industry. It also includes provisions on the bidding process, bid security, evaluation of bids. The EIA Act specifies different types of projects in respect of which a mandatory study must be conducted. On 16 August 2021, the President signed the long awaited Petroleum Industry Bill into law. It is common for the funder to enter into a direct agreement with project sponsor/company and the contractor that will provide the funders with step-in rights to terminate the project contract with the contractor and appoint a replacement contractor. 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 (. Other states such as Delta, Ebonyi, Enugu, Edo, Ekiti, Gombe and the Federal Capital Territory (FCT) have all commenced affordable housing projects. 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. Professional bodies are formed as an association of professionals which enhance, control, and regulate the activities of its members. 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: 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%. 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. Change in law risk. 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 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. 1 Percent of General Construction Total General Construction Estimate = $50,000,000 25% of Total General Construction = MEP Portion of the Construction = $12,500,000 MEP Design Fee: as Percentage of the MEP Construction (4%): Design Fee = $12,500,000 x 4% = $500,000 as Percentage of General Construction (25% x 4% = 1%): This was intended to: Avoid, minimise or offset the negative impact of their business operations on the environment and local communities in which they operate. 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