Our customer, a global manufacturing mechanical engineering company with headquarters in Germany, intended to build a new production facility in India. Against the background its decades of international experience, he instructed WB familiar with the Risk Analysis opportunities, appropriate tender process.  

As India experts, we are experienced in our daily business in quickly identifying the particular stumbling blocks and risks that an investment in India entails.  

After reviewing the existing documents, we were able to identify numerous warning signals: 

• The design and project management consultant (DPMC) that won the tender had very low share capital. This raised doubts about its performance and reliability. 

• The DPMC had hired subcontractors. One of these companies was owned by a close relative of the DPMC owner, raising questions about the overall subcontractor selection process. 

• The DPMC had subcontracted part of the construction work to a contractor. After the contract was concluded, he claimed that he was unable to meet his technical obligations. Here, too, the question arose as to how the selection process would proceed. Why was this particular construction company chosen by the DPMC? This was especially true considering that the contract was ultimately simply transferred to a subsidiary of the DPMC.  

We found risk potential not only in the tendering process itself. The contracts we analyzed with construction companies involved in the project (general contractors, electrical suppliers, etc.) also had anomalies: 

• In some contracts the text of the orders did not match that of the letters of intent (letter of intent) agree. Since the orders also referred to the declarations of intent, this led to considerable ambiguity with regard to the services actually owed, their scope, the order volume and the agreed payment terms. This lack of clarity could have led to significant financial losses at a later date. We advised the customer to make extensive changes to the text of future orders. 

• The agreement on liquidated damages (liquidated damages clause) was extremely ambiguous as to when it was due. It was completely unclear when a claim for payment of damages would have been triggered and when this was due. This went so far that there was even a risk that the flat rate compensation would never actually have to be paid at all. 

• Advance payments and advance payments to suppliers should be made against so-called “security checks”, i.e. crossed checks offered as security, which we considered to be too risky for our customer. 

• It also turned out that guarantees were based on so-called “non-judicial stamp paper” (i.e. not a valid document under Indian law), which rendered them worthless in terms of their legal enforceability. 

When reviewing the processes involved in acquiring the building site for the planned production facility, risks also emerged:  

The property purchased by our customer originally consisted of several parcels. These belonged to different parties, including several members of a family and company owners. After a series of property sales, these parcels were then assembled into the building plot purchased by our customer. However, the sellers of the parcels were named differently in various sections of the associated purchase deed. If these people were, as listed, If the property had actually been correctly named, there would have been a risk of legal problems with multiple owners.

Our customer would not have had the certainty that he had actually become the legal owner of the entire property. We advised our client to check whether and, if so, what agreements were in place regarding the mismatched owner names. In order to avoid legal uncertainties regarding our customer's ownership status in the future, it was necessary to clarify this legally in detail.  

Investing in India can be very lucrative for your company - if you are aware of certain risks and manage them early on. Practical risk management pays off for you. See risk as an opportunity. Feel free to contact us.