Norway: Construction

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This country-specific Q&A provides an overview to construction law in Norway.

It will cover termination requirements and obligations, permits and licence, procurement, financing and security, and disputes as well as insight and opinion on challenges and opportunities.

This Q&A is part of the global guide to Construction. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/construction/

  1. Is your jurisdiction a common law or civil law jurisdiction?

    The jurisdiction in Norway is based on a civil law system. The collection 'Laws of Norway' (Norwegian: "Norges Lover") consists of all Norwegian written laws.

    The Norwegian law legal system relies also quite heavily on legal precedents arising from judgments of the courts of law, in particular the Norwegian Supreme Court. Although not of binding force, Norwegian Supreme Court judgments are used as guidance in order to correctly interpret of the laws.

  2. What are the key statutory/legislative obligations relevant to construction and engineering projects?

    There are no Norwegian Acts regulating construction/engineering contracts.
    The Planning and Building Act of 2008 regulates the public permits required prior to any construction and engineering project. Most of the general rules can be found in chapter 9 of the act, as well as in the related regulations. An example of a key regulation includes the Regulations on technical requirements for construction works.

    The Construction Client Regulations sets out the minimum safety and health requirements relating to safety on construction sites and the obligation to ensure a safe physical and mental working environment.

    The Working Environment Act of 2005 and its associated regulations sets out requirements relating to salary, holiday and holiday pay, working hours, insurance and pension, accommodation and other working conditions.

  3. Are there any specific requirements that parties should be aware of in relation to: (a) Health and safety; (b) Environmental; (c) Planning; (d) Employment; and (e) Anti-corruption and bribery.

    (a) Health and safety;
    The Construction Client Regulations require that a custom health, safety and environment plan is created before the project is started. The plan must take into account all potential risks to health and safety.

    (b) Environmental;
    In Norway there are strict regulations which aim to protect the environment.

    For example, the Planning and Building Act of 2008 and the Pollution Act of 1981 set out requirements relating to energy consumption and the environmental impact of building materials used, the completed building's indoor environment, energy used during the building's lifetime, and what impact it has on the external environment.

    A breach of environmental regulations may constitute a criminal offence.

    (c) Planning;
    Most construction work requires necessary permits from the planning and building authorities before work can commence. For larger projects, obtaining building permission happens in two stages. Initially an application for a general permission must be made. Only after the first application has been approved, the application for a project start-up permission can be made. The latter provides the right to commence the work.

    (d) Employment;
    In relation to employment, parties should be aware of that minimum wage rates are mandatory in all construction projects and apply to both skilled and unskilled workers on construction sites.

    (e) Anti-corruption and bribery.
    The Norwegian Penal Code criminalises active and passive bribery, trading in influence, fraud, extortion, breach of trust and money laundering. A company can be held criminally liable for corruption offences committed by individuals acting on its behalf.

  4. What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?

    Most construction work requires permits from the planning and building authorities before the work can be started. The application process can be divided in two stages. Firstly, an application for a general permission must be made, following which the application for a project start-up permission (providing the right to commence work) can be made.

    If during the work process the parties want to make changes which do not conform to the permissions already granted, an application for modification permission can be made.

    When the construction work is finished, an application for a certificate of completion must be made in order to be able to use the building/project. A certificate of completion certifies that the building complies with the permits granted by the planning and building authorities.

    If there is any remaining work to do before a certificate of completion can be issued, an application for a provisional permission can be made in order to be able to use the building.

    Pursuant to the Planning and Building Act any entity carrying out (or allowing to be carried out) projects without the necessary permits shall be fined.

  5. Is tort law or a law of extra contractual obligations recognised in your jurisdiction?

    Yes. In general, under Norwegian tort law, liability for damages can arise provided certain conditions are met. The three conditions for damages are basis of liability, proximate cause (casuality) and financial loss.

    In relation to construction projects, the parties should be aware that one can be held liable for pollution damage. Further, strict liability applies to hazardous and dangerous activities, such as the use of explosives.

  6. Who are the typical parties to a construction and engineering project?

    The typical parties involved in a construction and engineering project are:

    1. Employer
      The employer procures the work, and is typically a land owner or land developer.
    2. Contractor
      The main building contractor is engaged by the employer to carry out and complete the work, under terms specified in a contract.

      The contractor may engage subcontractors to do parts of the work.

    3. Consultants
      The employer or the contractor (or both), will typically engage professional consultants, including engineers, architects and a project manager.
  7. What are the most popular methods of procurement?

    The Procurement Act of 2016 and corresponding regulations apply to public employers. It is distinguished between procurements with an estimated value above or below the EEA threshold (2018: 51 million NOK in construction contracts and 1.3 million NOK for goods and services contracts, including consultant contracts).

    For procurements with an estimated value below the EEA threshold the employer may use open or restricted procedures. The employer may choose to negotiate or to award the contract without any negotiations. Both procedures are equally popular.

    For procurements with an estimated value above the EEA threshold the most popular procedure is open or restricted procedure without negotiations. Negotiations are allowed, provide that certain criteria are met.

    Procurements with an estimated value below 1.3 million NOK do not require any special procedure, except that they must be accordance with certain basic principles of tender procedures, e.g. equal treatment, transparency and competition. Contracts with an estimated value below 0,1 million NOK are exempted from the procurement regulations.

    In the last years, several public entities have been applying the Best Value Procurement method (BVP). In short, this method implies that the public entity looks at factors other than price, such as quality and expertise, when awarding the contract. The BVP-method is typically use in combination with a restricted procedure without negotiations.

  8. What are the most popular standard forms of contract? Do parties commonly amend these standard forms?

    The Norwegian Standard (NS) set out standard terms and conditions for the contracting parties within constructing and engineering projects.

    The most popular construction contracts in Norway are:

    1. NS 8405:2008 Norwegian building and civil engineering contract; and
    2. NS 8407:2011 General conditions of contract for design and build contracts.

    NS 8405 has been prepared for general contracting, where the contractor agrees to build the design that is provided by the employer. There is also a NS 8406, which is a more simplified version of NS 8405 and is most popular for smaller projects. NS 8407 is a design and build contract, where the design and build contractor is responsible for both the design work and the execution of the building or civil engineering work.

    NS contracts are initiated and prepared by a committee appointed by Standards Norway.
    Even though the incorporation of NS in a contract is optional, any relevant NS is commonly used and considered as agreed terms. Furthermore, NS often refers to relevant EU directives, national laws and regulations, and provides a more detailed description of these.

    For offshore projects, the Norwegian Fabrication Contract (NF) is a Norwegian standard offshore fabrication contract, where the constructor is responsible for the fabrication/construction. The Norwegian Total Contract (NTK) is used where the contractor is responsible for both design and construction.

    Partnering contracts are becoming more popular in Norway. In a partnering contract the contractor is brought in on the project much earlier than what is traditionally the case. This way the employer and contractor can work together from the start, sharing risks, to optimize a successful completion of the project.

    Public private partnership contracts are also used in Norway, although to a somewhat limited extent. Similar to partnering contracts, the private party/contractor is brought in early on the projects, but in public private partnerships the private party is responsible for the operation and maintenance of the project also for a significant period after its completion (for example 20 or 30 years).

  9. Are there any restrictions or legislative regimes affecting procurement?

    Yes. For both public and private actors competition restrictions apply. The most important restrictions are the prohibition of exclusivity clauses/agreements and the prohibition of anti-competitive cooperation where the cooperating contractors could submit bids individually/separately.

    For public employers, further restrictions apply according to the Public Procurement Act of 2016 and its corresponding regulations. The Act regulates the procedure for conducting tender competitions, and shall ensure the most efficient use of resources in public procurement based on business and equal treatment.

    Private actors are basically free to manage their procurements, as long as they are in compliance with the competition rules and within the limits of pre-contractual liability.

  10. Do parties typically engage consultants? What forms are used?

    Professional consultants are widely used, especially by the party responsible for the design. Depending of what is needed for the relevant project, it may include architects and special engineers.

  11. Is subcontracting permitted?

    Subcontracting is generally permitted and commonly done. For NS 8405, 8406 and 8407 there are even corresponding sub-contracts available for this purpose.

    The main contractor does however bear the full risk and responsibility for any subcontracted work, and under the NS contracts the employer is in some circumstances entitled to reject the contractor's choice of subcontractor.

  12. How are projects typically financed?

    Government or public owned projects, such as most roads, tunnels, schools, libraries, museums, etc., are financed by the government.

    Private owned projects are for typically financed through bank loans.

  13. What kind of security is available for employers, e.g. performance bonds, advance payment bonds, parent company guarantees? How long are these typically held for?

    Normally the contractor provides the employer with a performance bond from a third party guarantor (usually a bank or an insurance company), to ensure compensation in case the contractor fails to meet his contractual obligations.

    Where the contractor is a subsidiary of another company, it is also normal to provide the employer with a parent company guarantee. The parent company guarantee is typically valid as long as the employer, in accordance with the contract, is able to make claims against the contractor.

    According to the NS contracts, the contractor is required to provide security for the performance of his contractual obligations during the execution period and the defects liability period. Under both NS 8405 and NS 8407 the secured amount is 10 % of the contract price during the execution period, which is then reduced to 3 % upon delivery of the work for a period of three years.

  14. Is there any specific legislation relating to payment in the industry?

    No, the payment is regulated in the contract between the parties.

  15. Are pay-when-paid clauses (i.e clauses permitting payment to be made by a contractor only when it has been paid by the employer) permitted? Are they commonly used?

    The parties are free to agree upon pay-when-paid clauses. However, these clauses are not part of the NS contracts and not commonly used.

  16. Do your contracts contain retention provisions and, if so, how do they operate?

    According to NS 8407, the contractor shall deduct 7,5 % of the progress payment basis for the employer to retain. According to NS 8405 and NS 8406, the percentage is 10 % of the invoices, but the deduction stops when the total amount reaches 5 % of the contract value.

    The contractor invoices retained amount payable as part of the final account.

  17. Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?

    The NS contracts have daily penalties with a total limit of 10 % of the contract value.

    The provisions are generally upheld by the courts, a highly unreasonable liquidated damages provision may however be set aside or modified.

  18. Are the parties able to exclude or limit liability?

    The parties are free to agree upon excluded or limited liability.

  19. Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?

    A party is entitled to terminate the contract if the other party has 'substantially breached' its contractual obligations, or if it is evident that such substantial breach will occur. This is in accordance with the NS contracts and also general Norwegian contract law.

    In a situation of substantial breach, the breaching party must be notified and given a reasonable deadline to rectify its breach before the non-breaching party is entitled to terminate the contract.

    According to the NS contracts, a party may also be entitled to terminate the contract if the other party goes bankrupt or insolvent, and it is not proven that the party will fulfil its contractual obligations.

    The employer is entitled to cancel all or part of the contract work in accordance with the NS contract agreed upon. In case of cancellation, the contractor is entitled to compensation for the financial loss he suffers as a consequence of the cancellation.

    A party is not entitled to terminate the contract (directly) based on a force majeure event, according to the NS contracts. Both parties are entitled to claim additional time based on a force majeure event, but not compensation for additional costs incurred as a result of the event.

  20. What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?

    Third parties can not bring claims directly against the parties to a contract. However, a contracting party may assign its contractual rights to a third party. Additionally, a second or subsequent owner of a building will in many circumstances be entitled to make claims for defects against the contractor in accordance with the original contract.

  21. Do contracts typically contain strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims? Does your jurisdiction recognise such notices as conditions precedent?

    The contractual notice of claims procedures within NS 8405 and NS 8407 are strict. Notices of claims have to be made 'without undue delay' following the occurrence of the event. If the contractor fails to do so, the claim will may be rejected for untimely notice.

    Similarly, if upon receipt of a notice of claim the employer wishes to fully or partly reject the claim, it has to give notice of such rejection 'without undue delay' following the receipt of the claim.

  22. What insurances are the parties required to hold? And how long for?

    The parties are free to agree upon what insurances to hold.

    According to the NS contracts, the contractor must maintain insurance over the contract work until delivery of the contract work. The employer shall be co-insured.

    The NS contracts also require the contractor to hold a liability insurance to cover any property damage, financial loss or bodily injuries, including those concerning a third party, caused during the contract work.

  23. How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?

    If the parties are unable to resolve the dispute through negotiations, the NS contracts provide for different dispute resolutions, depending on the contract and the economic value in question.

    Disputes concerning large values are often referred to arbitration in the contact, unless the parties have agreed upon litigation.

    There are no specialised courts for construction disputes in Norway. Construction and engineering disputes are typically handled through ordinary litigation, but the parties may require expert lay judges.

    Judicial mediation is often carried out before litigation is commenced. Judicial mediation is a court-led mediation where the case can be concluded in the form of an in-court settlement. The purpose is for the parties to avoid litigation with the help of a judicial mediator, who is often a judge.

    Another alternative is mediation outside of the court system, with an agreed mediator. This can be beneficial in large and complex construction disputes, where the parties can agree to use a mediator specialised within the field.

  24. How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?

    The Arbitration Act of 2004 governs arbitration that take place in Norway. The district courts can assist during the arbitration process if needed, for example with taking evidence and nominating arbitrators.

    Both international and Norwegian awards are recognisable and enforceable in Norway if the dispute could have been settled by arbitration under Norwegian law, and recognition and enforcement is not contrary to public policy.

    Norwegian awards can be enforced by the local enforcement authorities, which typically take 1-4 months. Foreign awards have to be sent to the local district court to be enforced. This can take up to 3-6 months.

  25. Are there any limitation periods for commencing disputes in your jurisdiction?

    In regard to claims, the Norwegian Limitation Act of 1979 sets a general limitation period of three years for commencing disputes. The limitation period start to run when the creditor first had the right to demand performance. If the claim has not been made because the creditor did not know of the claim, there is a supplementary limitation period of one year from the date the creditor obtained or should have obtained such knowledge. The maximum limitation period is ten years.

    For construction and engineering disputes, the NS contracts provide that the contractor must initiate litigation or arbitration proceedings within eight months after take-over of the contract work.

  26. How common are multi-party disputes? How is liability apportioned between multiple defendants? Does your jurisdiction recognise net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses), and are these commonly used?

    According to the Disputes Act of 2005 several parties may sue or be sued in the same case if the claims are under Norwegian jurisdiction, the claims are submitted under the jurisdiction of the court and the claims can be handed by the court with the same composition and mainly according to the same case processing rules. Parties on the same side in a lawsuit are considered as independent parties to the counterparty.

    The Disputes Act of 2005 also opens for a lawsuit being submitted for or against a group (e.g. of people, organisations, companies) on the same actual and legal basis. A verdict will be binding on all participants in the group.

    It is not uncommon to have multiple parties on one or more sides in a dispute. However, group lawsuits are more uncommon.

    Clauses limiting the liability of the party in breach is recognised, but is often limited by gross negligence and intent. This is especially common in advisory contracts as well as in manufacturing contracts. The liability for delay liquidated damages is limited in the NS contracts. Limitations in Norwegian contracts are usually limited to a predefined limit, and not on the basis of what is fair and reasonable.

  27. What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?

    The biggest challenges facing the construction sector in Norway today are several. The most important are nevertheless to combat labour crime, improve communication flow in the projects, reduce the number of disputes, get small contractors to adapt to larger projects, and cooperation and competition with foreign contractors. The use of new types of contracts will be more prominent in the coming years, which can also pose challenges.

    There are also big opportunities in the years to come. For example, several of the contracts entered into today are on a larger scale, which contributes, among other things, to increased security for workers and a high creation of value in society. Furthermore, we see that new types of contracts that allow for greater involvement of contractors, such as optimised solutions developed by the contractor, can open up for new opportunities.

    In addition to this, and mainly as a result of the latter, there will be fewer disputes related to the design and planning in the design and build contracts, which is a positive development for the employer.

  28. What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?

    Infrastructure projects are currently attracting the most investment in Norway today. The Norwegian government has decided in the national transport plan that significant funds will be invested in infrastructure over the next years, mainly roads and railroads.

    There will also be major investments in the power industry.

  29. How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?

    Technology is envisaged to have a significant impact on the construction and engineering industry, including easing the processes in a project. Among others things, the Building Information Modeling system (BIM), digital 3D-modelling of a project, will help improve the way projects can be designed, constructed and operated. Also newer technology, such as so-called wearables, cloud computing and advanced construction materials, will make its way into the Norwegian construction projects.

    New technological solutions can potentially reduce the number of disputes arising from the project planning and design.