International developers and contractors, in developing or constructing projects in unfamiliar countries, are exposed to a wide variety of risks. These include, given the duration of many projects, and their significance to host economies, the risk of unpredictable changes in government policy or legislation, or actions by government authorities which impact on the project. These impacts can arise both where a state or state-owned company is a contracting party, and where it is not.

In addition to negotiating suitable international arbitration dispute provisions in underlying agreements, international developers and contractors are also increasingly relying on investment treaties to provide a level of protection for political sovereign risk. Investment treaties are agreements between two or more states by which each contracting state agrees to promote and protect investments made in its territory by investors of the other contracting state or states. Although the treaties are inter-state in nature, they are designed to protect investors in the host state as direct beneficiaries. An investor’s rights under an investment treaty operate independently of any contractual or legislative rights.