This country-specific Q&A provides an overview to construction law in Switzerland.
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/
Is your jurisdiction a common law or civil law jurisdiction?
Switzerland is a civil law jurisdiction.
What are the key statutory/legislative obligations relevant to construction and engineering projects?
The relevant obligations to construction and engineering projects result both from private and public law, and may be federal, cantonal and/or communal.
From a private law perspective, the main obligations are laid down in articles 363 to 379 of the Swiss Code of Obligations (“CO”) concerning the contractor agreement and in articles 394 to 406 CO concerning the agent agreement. It has though to be specified that most of these legal provisions are not mandatory and may be amended by contract between the parties. The SIA Norms, which are regulations issued by the Swiss Society of Engineers and Architects (“SIA”) concerning technical and legal standards for planning and construction, are often included in the agreement by the parties as integral part, corresponding to standard market practice.
From a public law perspective, the main obligations are laid down in the following law areas, which provisions may be federal, cantonal and/or communal, depending on the area and on each Canton: environmental law, zoning/planning law, construction law, housing law, energy law, and employment law.
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.
Specific requirements exist in relation with the following topics
A) In respect of health and safety, for older buildings (generally speaking, those who were built before the ‘90s), building permits are subject to an asbestos-analysis, and in some cantons, to a PCB/leaded-paint analysis. In case the building contains asbestos (or PCB/leaded-paints), special requirements for workers must be complied with by the contractor (duty to report, paper trail, special equipment to be used by the workers, etc.) and the relevant materials must be eliminated in authorized waste disposal areas.
B) In respect of environmental regulations, in case of existence of hazardous material and/or soils pollution, the parties have to comply with specific federal/cantonal provisions regarding the removal and the waste management and treatment of such hazardous material/pollution. The sale of polluted sites in particular requires a special authorization.
C) In respect of planning regulations, the most important point is that the construction project complies with the planning and zoning regulations applicable to the zone area where the construction project is located, it being specified that such regulations are usually cantonal and/or communal depending on the Canton. In particular, the construction project has to comply with the permitted allocation and the construction regulations of the area, which are laid down in legal acts and/or in zoning plan or neighborhood plan. On top, projects in touristic areas having more than 20% of holiday homes must comply with the requirements of the so-called “Lex Weber”.
D) In respect of employment regulations, the contractor has to comply with general principles such as equality of treatment, non-discrimination, rules applicable to foreign workers, pension funds and social insurances, etc. The contractor has further to comply with provisions on health and safety at work with respect to its employees.
E) In respect of anti-corruption provisions, no specific rules apply to the construction sector solely, and standard anti-corruption and bribery regulations apply.
What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?
Works can usually not be initiated before delivery and entry into force of a construction permit. During work, a complementary construction permit may be required if amendments are made to the initial construction project and, in the absence of any changes, compliance with the permit as well as with regulations for construction works apply (schedules, work during week days, no night work except if authorized, etc.) After completion of the work, delivery of an occupancy permit or certification by an architect is required. If the construction project does not comply with the construction permit, the risk is that the non-authorised part of the project has to be demolished and is further subject to fine.
Is tort law or a law of extra contractual obligations recognised in your jurisdiction?
Yes, tort law is a law of extra-contractual obligations recognized under Swiss law.
Who are the typical parties to a construction and engineering project?
The typical parties of a construction project are the following:
- The principal: who generally owns the land on which the construction will be erected;
- One or several contractors
- Engineers (civil engineer / HVAC engineer / etc.)
- Assistant/representative of the principal
What are the most popular methods of procurement?
The most popular methods of procurement are the architect agreement and the general or total contractor agreement.
What are the most popular standard forms of contract? Do parties commonly amend these standard forms?
The standard form regulations issued by the SIA (www.sia.ch) are the most popular standard forms of contract used in practice, in particular by architects, engineers and contractors.
The blanks of the standard forms and the multiple choices questions have first to be completed by the parties, so as the standard form be adjusted to the relevant construction project.
In view of the multiple possible types and characteristics of construction projects, the standard forms are usually amended by the parties in order to fit the actual construction project or to balance-out standard clauses that may be deemed too favorable to architects, engineers and contractors.
Are there any restrictions or legislative regimes affecting procurement?
Public bodies are subject to special rules, implying a competitive call.
Do parties typically engage consultants? What forms are used?
Parties generally engage consultants. In particular, if the construction works are voluminous, it is common that the principal appoints a third party as project manager, to assist him within the construction works (as a decision support), to follow the progress of the construction works and to represent him during the works towards the contractor(s) and the agents (architect, engineers). The principal concludes a so-called “principal’s assistant” agreement or “principal’s representative” agreement with a so-called “assistant to the contracting authority”, which is a mandate within the meaning of articles 394 to 406 CO.
Is subcontracting permitted?
Sub-contracting is generally permitted. Indeed, pursuant to article 364 al. 2 CO, the contractor is obliged to carry out the work in person or to have it carried out under his personal supervision, unless the nature of the work is such that his personal involvement is not required. In other terms, subcontracting is permitted if the nature of the work does not require the personal involvement of the contractor. Thus, sub-contracting is generally permitted, as the nature of the work is rarely “personal” in the context of construction works. The parties may however contractually restrict the right of subcontracting, and may, in particular, grant the principal the right to oppose the choice of the subcontractors (veto right) or to propose/impose some subcontractors (proposal right).
How are projects typically financed?
Construction projects are generally financed by construction loans (or mortgage loans) granted by banks or insurance companies and secured by a mortgage encumbering the property on which the project is erected.
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?
There are two kinds of securities which may be required by the principal: during completion of the contract (so-called “performance guarantee”) and after completion, to secure claims arising out of defects in the work (so-called “guarantee for defects”). Performance guarantee is generally served at signing of the contract and is given back upon delivery of the work against delivery of a guarantee for defects. Different types of guarantee can be used, such as first demand bank guarantee, joint surety bond, first demand insurance guarantee, etc.
Is there any specific legislation relating to payment in the industry?
There are no specific legislation relating to payment in the industry. However, given ever tighter AML rules, payments are customarily run through wire transactions through the banks of the parties involved with corresponding compliance implications.
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?
“Pay-when-paid”-clauses are permitted, but not commonly used in practice.
Do your contracts contain retention provisions and, if so, how do they operate?
Retention provisions are common when SIA norms are applicable, as they provide for 10% holdback amount on each invoice. The remaining 10% are accordingly to be paid at the end of the construction.
Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?
Contracts may contain delay liquidated damages provisions. Such are upheld by the courts to the extent they are reasonable.
Are the parties able to exclude or limit liability?
Parties may exclude or limit liability, but provisions limiting liability for unlawful intent or gross negligence in advance are void.
Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?
The principal/customer may withdraw from a contractor agreement at any time before the work is completed provided he pays for work already done and indemnifies the contractor in full (loss of gain indemnity). The principal/customer may also withdraw from the contract before or after completion if an estimate agreed with the contractor is exceeded by a disproportionate amount through no fault of the customer. However, such withdrawal is very restrictively admitted by Swiss courts. Extraordinary circumstances (such as force majeure) entitle the parties first to adapt the price ; termination is possible in such cases only if the court rules so, i.e. when even with a price adaptation, the execution of the contract can’t be reasonably required.
What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?
Contracts usually limit duties and rights to the parties to the agreement. Buyers get control and monitoring rights when buying turn-key projects.
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, provisions about notices of defects are usually strictly drafted but are not mandatory and may be changed by the parties. Swiss law recognizes these requirements as conditions precedent.
What insurances are the parties required to hold? And how long for?
Parties are required to hold different insurances: the principal shall hold a principal’s civil liability insurance as well as construction works insurance. The contractor shall hold a contractor’s civil liability insurance, a building insurance, a fire and elementary damages insurance, and insurance for materials and tools brought on the worksite by the contractor. Those need to be in place during performance of the works. A ground-up insurance is sometimes put in place in long construction sites.
How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?
Construction and engineering disputes in a domestic context are mostly resolved via litigation before ordinary courts. Arbitration is available (different ad hoc bodies have developed) but the number of cases resolved by this way remains limited, due to high costs associated thereto.
How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?
Domestic courts are rather supportive of arbitration. They can be asked to nominate the members of the arbitral tribunal if such members are not appointed within a reasonable deadline. Ordinary courts may also be asked to order interim measures as well as to support the arbitral tribunal if the taking of evidence or any other procedural act requires the assistance of the official authorities. In certain situations, an award may be appealed to the ordinary courts or to the Swiss Federal Court. Timing for the enforcement highly depends on the merits of the case.
Are there any limitation periods for commencing disputes in your jurisdiction?
There are no specific rules or limits to the commencement of disputes, but such are generally dictated and/or limited by the rules on time-barring periods, which the defendant can raise. The right of the customer to bring claims due to defects in the work is generally limited to two years from acceptance of the work if SIA norms are integrated and to five years in a standard contractor’s agreement (i.e. if SIA norms are not integrated). Under the standard CO rules, a claim for defect is only valid if the notice for defect was made immediately, i.e. within 24 to 48 hours from noticing the defect.
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 dispute are common when works are performed by several contractors and the origin of a defect/damage may not be determined with certainty. This is even more often when each contractor is insured with a different insurance company. Contracts may exclude joint liability, thus triggering a comparable result as “net contribution clauses”.
What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?
The biggest challenges facing the construction sector in Switzerland for the moment is the implementation of the new Federal Act on land allocation with stricter conditions applicable to zoning plans and building in non-buildable areas, as well as an increasing pressure on prices in transboundary areas.
What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?
Currently, infrastructure is the type of projects attracting the most investment in Switzerland (tramway, railroad, transboundary railway Cornavin-Eaux-Vives-Annemasse, so-called “CEVA”, etc.) while commercial and residential property investments continue to remain on high levels.
How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?
Technology issues affecting the construction and engineering industry are for example the increasing use of Building Information Modeling (BIM). This will probably allow for a better survey of the different steps in construction procedures and standardize the information available to the different parties. Questions of intellectual property on the data collected via BIM will arise.