Sweden: Construction

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

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?

    Sweden is a civil law jurisdiction. The laws of Sweden have historically been influenced by other civil law jurisdictions such as Germany, as well as by the other Nordic countries.

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

    There is no specific legislation in Sweden for construction contracts, other than construction contracts with consumers, which fall under the Consumer Services Act (1985:716). This Act is part of the consumer protection legislation and its provisions cannot be generally applied by analogy to commercial construction contracts. As for commercial construction contracts, general contract law principles are applicable. Those can be found in, inter alia, the Contracts Act, the Torts Act and in case law. The Swedish Supreme Court has also stated that provisions in the Sale of Goods Act can sometimes be applied by analogy to construction contracts.

  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;
    Swedish law includes comprehensive legislation on work environment. The Work Environment Act and associated statutes contain specific provisions for construction projects. Under these provisions, “a person who orders the execution of building or construction works”, i.e. usually the owner/employer under the construction contract, is responsible not only for his own employees, but carries an overall responsibility for the coordination of work environment matters in the project. The obligations include, among other things, to prepare a work environment plan and to appoint a work environment coordinator for both the planning and design phase and the on-site construction phase. These obligations can be delegated to a contractor, provided that the contractor has a sufficiently independent role in the project.

    (b) Environmental;
    Swedish law includes comprehensive environmental legislation, including the Environmental Code and various special statutes. Environmental permits will usually be required for large construction projects, e.g. for water or groundwater activities.

    (c) Planning;
    Swedish law includes comprehensive planning and building legislation, including the Planning and Building Act and associated statutes. There is a system with municipal zoning plans that have to be complied with, and building, ground or demolition permits are required for all construction projects.

    (d) Employment;
    Swedish law includes comprehensive legislation in the field of employment. The labour unions in Sweden, including the Construction Workers Union, have a strong position and regularly go on strike. Blockades and other labour actions are often taken against foreign companies which do not have collective bargaining agreements or do not respect labour laws that are equivalent to the laws in Sweden.

    (e) Anti-corruption and bribery.
    Sweden has anti-corruption and bribery laws that are similar to the laws in most other Western jurisdictions. Bribery is regulated under the Penal Code and is a criminal offence. There is no distinction between bribery of public officials and private persons. However, there is usually a higher risk that a benefit given to a public official will be deemed to be a bribe.

  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?

    No general permits or licenses are required to carry on a construction business or to perform construction works in Sweden. Special authorizations may be required to perform certain types of work, such as installation of high-voltage equipment or removal of asbestos.

    Pursuant to the planning and environmental legislation, several types of permits are required for construction projects, such as building and environmental permits. As part of the building permit procedures, a final certificate from the municipality is usually required before a new building can be taken into use.

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

    The Swedish Torts Act is applicable to both contractual and non-contractual relationships. In contractual relationships, the Torts Act applies to the extent that there are not deviating provisions in other rules or in the parties’ contract. Under the Torts Act, a person is liable for physical damage and personal injury which he causes intentionally or by negligence. In non-contractual relationships, the liability does not cover pure economic loss unless there is a criminal offence. In contractual relationships, however, the liability for negligence also covers pure economic loss.

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

    This depends on the type of project. Most types of contract structures are seen in the Swedish market, including single point EPC contracts as well as split contract structures. Very few employers and contractors have in-house capacity for design work, meaning that architects and technical consultants have an important role in most projects. As will be dealt with in more detail below, some projects are financed with bank debt, in which case the lenders will have a role in the projects.

    It may also be mentioned in this context that inspectors play an important role in Swedish construction projects. The dominant Swedish standard forms (see more below), which are used in almost all projects in Sweden, provide that inspection of the works shall be carried out by an independent inspector. Final completion requires that the works have been approved at a final inspection. The inspector is appointed by the employer, but has to act impartially. His inspection reports are not binding on the parties, and can be reviewed and revised by a court or arbitral tribunal.

  7. What are the most popular methods of procurement?

    Sweden has a long tradition of competitive bidding in the construction industry, including private as well as public works. Public procurement is regulated by legislation (see more below).

    Build-only type of contracts (i.e. contracts with owner/employer design) is the most common contract form, although design-build contracts are becoming increasingly popular. Sweden’s largest procurer of construction works, the Swedish Transport Administration, has announced a plan to increase its use of design-build contracts from around 10% to 40%, suggesting that the design-build method of project delivery will give the contractors more freedom and incentives to develop innovative and efficient solutions.

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

    There is no legislation on procurement for private employers. Private employers are free to procure their project in the way they want. The Public Procurement Act (which is based on the EU directives) applies to public procurement of construction works.

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

    There is no legislation on procurement for private employers. Private employers are free to procure their project in the way they want. The Public Procurement Act (which is based on the EU directives) applies to public procurement of construction works.

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

    Yes. Very few employers and contractors have in-house capacity for design work, therefore engaging architects and technical consultants for such work. Project management consultants are also used. There is a standard form for consulting services, ABK 09, which is used for almost all consultancy contracts in the Swedish construction industry. ABK 09 is adapted to the standard forms for construction, AB 04 and ABT 06.

  11. Is subcontracting permitted?

    Yes. It is permitted and very common. In a Swedish construction project, some 70-80% of the works is typically subcontracted.

  12. How are projects typically financed?

    In the public sector, most projects are financed by tax money through the public budgets. A few debt and equity financed public-private partnerships have been implemented (e.g. the Stockholm-Arlanda Rail Link and the New Karolinska Hospital in Stockholm), but this financing form is uncommon and, given Sweden’s strong public finances, there is currently little or no prospect of a significant change of this.

    In the private sector, limited-recourse project finance structures are common in some industries, for example the wind power industry.

  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?

    Bonds or guarantees or insurance solutions similar to bonds or guarantees are commonly used in Sweden. Public sector entities are usually not allowed to make advance payments without an advance payment bond. Accessory bonds or guarantees are normally used. On-demand type of bonds are not so common. Bond and guarantees are usually held during both the construction period and the warranty period. The most common level of bond or guarantee is 10% of the contract price.

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

    The principle of freedom of contract is very strong in Swedish law. There is no specific legislation that will interfere with the parties’ freedom to agree the payment conditions. The Interest Act (which may be set aside by contract) provides for penalty interest for late payment (currently 7.5% p.a.)

  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?

    Yes, pay-when-paid clauses are permitted, but they are not very common.

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

    As stated above, the parties are free to agree the payment conditions. Retention mechanisms are commonly used. Under the dominant standard forms AB 04 and ABT 06, the default position is that the employer is entitled to retain 10% of each invoice payment, up to a maximum of 5% of the contract price. The retention fund shall be paid out when the works are approved at the final inspection and all defects (including punch list items) have been rectified.

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

    Almost all construction contracts in Sweden contain liquidated damages clauses. Such clauses are valid under Swedish law and are generally upheld strictly in accordance with their terms. Swedish law recognises that liquidated damages may have both compensatory and penalising (or incentivising) purposes. Owing to the strong principle of freedom of contract, a Swedish court or arbitral tribunal would only in exceptional circumstances modify or set aside a liquidated damages clause in a commercial contract. The Swedish Supreme Court has stated in a case, where it upheld a liquidated damages clause despite the fact that the works could not be taken into operation due to the delay of other works by other contractors, that Section 36 of the Swedish Contracts Act (which is a clause that can be used to modify or set aside contract terms that are deemed to be unconscionable) can be used in exceptional cases if the employer is over-compensated. If the employer has taken the works into beneficial use before final completion, the liquidates damages shall be adjusted to reflect that circumstance.

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

    Yes. Exclusions and limitations of liability are valid under Swedish law and are generally upheld in accordance with their terms. Owing to the strong principle of freedom of contract, a Swedish court or arbitral tribunal would only in exceptional circumstances modify or set aside an exclusion or limitation of liability clause in a commercial contract.

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

    There are no statutory restrictions on termination. The parties are free to agree their termination provisions in construction contracts.

    There is no general rule under Swedish statutory law dealing with the right of a purchaser of goods or services to reduce the agreed scope using the concept of “termination for convenience” or similar in relation to commercial contracts, and such rights generally need to be expressed in the contract to apply. If not, the original contract scope is binding. The dominant standard forms (AB 04 and ABT 06) include customary variation provisions but do not include any right for the employer to terminate the contract for convenience. In principle, the employer can use his variation rights under these forms to omit all the remaining works, but will then have to reimburse the contractor for certain losses and costs as set out in the forms.

    If the contract between the parties is silent on the matter, there are no default rules on force majeure specifically applicable to construction contracts. However, there are general principles of contract law that can give rise to relief in the event of force majeure. Generally, force majeure events are defined as external events that were unforeseeable to the parties at the time the contract was made and which cannot be prevented by reasonable means. Further, for an event to constitute a force majeure, the event must make the performance of the contract wholly or partially impossible, at least in an economical sense. In case of a force majeure event, the affected contractual obligation is likely to become subject to modification in accordance with section 36 of the Swedish Contracts Act, which is a clause that can be used to modify or set aside contract terms that are deemed to be unconscionable in the circumstances. The parties are free to agree the definition of force majeure and the consequences of any such event in their contract.

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

    Unless a third party is expressly given a right under the contract, third parties cannot generally obtain rights under construction contracts and bring claims against the contractor in respect of delays or defects. If a contract is worded to give rights to a third party (which would be very rare in a construction contract), exclusions and limitations of liability in the contract will typically be given effect.

    Collateral warranties by designers, sub-contractors or others are rarely used in Swedish projects. However, in project finance structures, which are common in the wind power industry and some other industries, direct agreements or other instruments giving rights to the lenders are commonly used.

  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?

    Yes, such provisions are common and are generally upheld in accordance with their terms.

    The general limitation period under Swedish law is 10 years. There is also a general principle in Swedish law that a party who wants to make a claim or exercise a remedy must notify the other party within a reasonable time (which is usually months rather than weeks). The Swedish Supreme Court has dismissed claims in cases where a contract party has waited for several years to exercise a contract remedy. The parties are free to enter into agreements on time-bars and other limitations. The dominant standard forms (AB 04 and ABT 06) contain several provisions on time-bars for claims.

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

    There is no specific legislation that regulates the insurance requirements in construction projects. The parties are free agree on this in their contracts. Under the dominant standard forms (AB 04 and ABT 06), the contractor is required to maintain all-risk insurance and general liability insurance during the construction period and for two years following final completion. In the Swedish insurance market, there are special insurance policies which are designed to meet the requirements under AB 04 and ABT 06.

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

    It is very common for construction and engineering disputes in Sweden to be resolved by arbitration. The dominant standard forms (AB 04 and ABT 06) contain arbitration clauses for all disputes over a certain threshold amount (ca. EUR 650,000).

    There are no specific courts or judges in Sweden specialising in construction disputes. Nor are there any statutory provisions on binding adjudication or similar for construction disputes.

    The relevant levels of court for civil law matters, including construction contracts, are the district courts, the courts of appeal and the Supreme Court. Almost all court decisions are available through various databases. There is no formal doctrine of binding precedents. However, the Supreme Court’s judgments are a source of law and generally must be followed by the district courts and the courts of appeal.

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

    Arbitration is very common in Sweden and both the legislation and the courts are supportive of arbitration. Swedish arbitration awards are directly enforceable in Sweden by an application to the Enforcement Agency. The courts do not need to be involved. An application for enforcement of a foreign award must undergo an exequatur proceeding in the Svea Court of Appeal in Stockholm. Enforcement of arbitral awards is not a problematic area in Sweden.

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

    No, not when it comes to construction contract claims. However, the general statutory limitation period (see above) or limitations under the parties’ contract may limit a party’s right to bring a claim.

  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?

    Multi-party construction disputes are not very common in Sweden. If multiple defendants are held liable, they will be jointly and severally liable to the claimant under Swedish law, unless otherwise agreed. The defendants are free to regulate in their agreement how to internally apportion their liability. There are no statutory provisions that regulate the internal apportionment of the liability between the defendants. If it cannot be ascertained what loss each defendant has caused, general Swedish contract law principles provide that the liability shall be apportioned between them in a “fair and reasonable way”. In practice, this will often be in equal shares.

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

    The construction costs in Sweden are among the highest in the world. This is due to high salaries for construction workers, high taxes and high costs for construction material. At the same time, the quality requirements under Swedish building regulations are among the highest in the world. Sweden has seen a great population growth and urbanisation in recent years and there is a severe shortage of housing, especially in the larger cities. To build affordable housing is a great challenge and will continue to be so for many years.

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

    Sweden has a severe shortage of affordable housing. Swedish public infrastructure (such as the railway sector) also needs significant investments in the coming years. For example, unlike many other Western countries, Sweden is lacking a modern high-speed rail network.

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

    Like in many other countries, the Swedish construction industry has not kept pace with other manufacturing industries when it comes to technology. This is about to change. Use of sophisticated 3D models for design work, modern energy solutions, and increased use of factory made construction elements are examples of a modernisation of the construction industry.