What are the key statutory/legislative obligations relevant to construction and engineering projects?
Both construction and engineering contracts are governed by general contract law as set forth in the Belgian Civil Code, more specifically in its articles 1101 – 1369 (general contract law), and by a specific set of rules applying to contracts for the hire of works or services (articles 1787 and following of the Civil Code).
As a general principle, the content of construction and engineering contracts is to be determined by the parties themselves (principle of contractual freedom; article 1134 of the Civil Code).
However, articles 1792 and 2270 of the Civil Code, which establish the so-called decennial liability, are considered public policy provisions and therefore parties are not entitled to derogate from these rules. This specific liability is incurred by the contractor and/or the architect when defects occur within a period of 10 years from completion and affect the stability of the building.
In addition, there are several mandatory rules to be observed.
A construction contract relating to the construction of a house or the sale of a house to be or being built, shall take into account the provisions of the mandatory Act of 9 July 1971 (and its implementation decree, the Royal decree of 21 Octobre 1971). In addition, some provisions of Book VI – Market practices and consumer protection of the new Commercial Code must also be taken into account.
Public construction contracts however are dealt with in the more specific public procurement regulations. This area of law was recently updated pursuant to EU law (more specifically 3 Directives adopted in 2014 (2014/23/EU; 2014/24/EU and 2014/25/EU)). Therefore, the provisions of the Act of 17 June 2016 on public procurement and various royal decrees adopted, must be taken into account.
Note that engineering contracts between an employer and an architect are not, as such, regulated. Parties are therefore free to determine the content of an engineering contract (except for the decennial liability – see above). The architect as such is bound by several ethical and professional rules, as it is a regulated profession.
Establishment of a legal presence
Entities wishing to undertake construction and engineering projects in Oman must establish a legal presence for the conduct of construction activities and/or for the provision of engineering services. Foreign entities typically register a local branch or incorporate a limited liability company (“LLC”). Under the Foreign Capital Investment Law RD 102/94, as amended (“FCIL”) up to 70% of the share capital of an LLC can be foreign-owned. The remaining 30% must be held by an Omani legal person.
Under ministerial decision (“MD”) 174/2014, construction activities may be carried out only by a company established for the specific purpose. A contracting company must ensure:
a) that personnel of the company are used exclusively for contracting activities;
b) compliance with the Omanisation requirement set out by the Ministry of Manpower (“MOM”);
c) implementation of appropriate HSE standards approved by the relevant authorities;
d) registration with the Association of Omani Contractors (“AOC”) within a year of incorporation; and
e) appointment of an Omani national registered with the Public Authority of Social Insurance (“PASI”) as a manager/director if an Omani shareholder is not occupying that post.
Foreign companies seeking to provide engineering services in Oman need to be licensed as engineering and design consultants in accordance with the Engineering Consultancy Law RD 27/2016 (“ECL”) which regulates the conduct of engineering activities in Oman. A foreign entity seeking to establish an engineering consultancy office in Oman requires a 35% equity participation of an Omani engineer. For a foreign engineering company to qualify for registration of an Omani engineering consultancy office it must demonstrate 10 years or more experience of providing engineering services in other jurisdictions.
Contractor’s and Engineer’s Obligations
The Civil Transactions Law, Royal Decree (RD 29/2013 (“CTL”) stipulates the respective statutory obligations of a contractor and an employer. These may be expressly incorporated into a contract. Where a contract is silent on matters such as pricing, completion, supply of materials, increase in costs, then the provisions of the CTL will apply. If the CTL is silent, reliance may be placed on custom and market practice.
There is no specific Danish legislation for construction contracts. General principles of contract and tort apply.
A set of national standard forms of contract (“AB Standards”) are widely accepted and used in the Danish construction industry.
Public authorities and other public-sector employers are obligated to use the AB Standards and must comply with the public procurement legislation.
When planning and executing a construction project, there are also several legal requirements set out in various acts and government orders that apply. For example, the Building Act and government order on building regulations (in Danish: Bygningsreglementet) set out specific requirements for constructions, including technical requirements on lighting, acoustics, indoor climate, etc.
The key legislative and statutory obligations relevant to construction and engineering projects are set in Law 38/1999, passed on the 5th of November, for the regulation of Construction (Ley de Ordenación de la Edificación) and in the Technical Code of Construction approved by Royal Decree 314/2006, of 17th of March (Código Técnico de la Edificación). They are the following:
- Fulfillment of the basic requirements of constructions:
- Relating to functionality meaning that the building has to be adequate to the projected functions, has to be accessible for the disabled and for post services and has to have access to telecommunication, audiovisual and information services;
- Relating to safety, both structural and in case of fire and also security in the regular use of the building in the sense that such use does not imply a risk of accident for people;
- Relating to livability, warranting the hygiene, health and environment and also meaning that the building protects its users against noises and provides energy saving and thermal proofing.
- The existence of a project defining the technical requirements to be fulfilled by the constructions.
- Obtaining of licenses and administrative authorizations.
- Obligation of receiving the construction. It is the act by means of which the constructor delivers the finalized construction to the promoter who accepts it. It can be accepted with or without reserves.
- Specific obligations of all the agents participating in the project: promoter, project planner, constructor, construction director and executive construction manager.
- Promoter: It is the person who decides, drives, plans and finances the construction. He is obliged to be the owner of the soil on which the building will be constructed or at least he has to be entitled to build it. He has to provide with all the documents necessary to draft the project, obtain the licenses and subscribe all the relevant liability insurances.
- Project planner: He is the one drafting the project according to the applicable regulations. He has to be an architect or an engineer depending on the construction.
- Constructor: The one executing the construction process according to the project, the applicable regulations and the instructions given by the construction director and the executive construction manager. He is obliged to designate the construction chief (jefe de obra). He is also the one signing the certificate of the beginning of the construction and the certificate of reception. He is also obliged to subscribe the relevant insurance policies.
- Construction director and executive construction manager: They are the ones directing the development of the construction in all its aspects. They need to be architects or engineers depending on the construction.
- Obligation of subscribing the relevant liability insurances in order to cover the damages suffered by the building. There are compulsory insurances to be subscribed:
- a 1-year warranty to cover any material damages caused by a poor execution to be subscribed by the constructor;
- a 3-year warranty to cover the material damages caused by defects affecting livability to be subscribed by the promoter;
- a 10-year warranty to cover the material damages caused by defects affecting structural safety to be subscribed by the promoter.
Indonesia recently introduced a new Law No. 2 of 2017 on Construction Services on 12 January 2017 which has revoked the previous Construction Services Law No 18 of 1999 (the “Construction Law”).
Some key statutory /legislative obligations under the Construction Law are as follows:
- Mandatory provisions: matters that must at least be covered under the Construction Work Contract (the “Construction Contract) are:
(a) the identity of the parties;
(b) explanation of the scope of work;
(c) warranty period;
(d) equal rights and responsibilities between the service user and the service provider (contractor);
(e) utilization of construction worker;
(f) payment method;
(g) event of default;
(h) dispute settlement;
(i) termination of Construction Contract;
(j) force majeure;
(k) building failure;
(l) worker protection;
(m) protection over the third parties other than the contracting parties and the worker;
(n) environmental aspects;
(o) guarantee over the risk arising and legal responsibility towards other parties in the implementation of construction work or effects of building failure;
(p) choice of construction dispute settlement;
(q) intellectual property rights for the planning services; and
(r) transfer of technology if the Construction Contract is performed by the foreign party.
- Governing language: the Construction Contract must be made in the Indonesian language. If the Construction Contract involves a foreign party, it must be made in both the Indonesian and English languages and if there is any inconsistency, the Indonesian language version will prevail.
- Subcontractor: The main work may only be given to a sub-contractor who is a specialist and must obtain the approval of the Service User. The main work refers to the chain of activities in the undertaking of construction services which has the highest risk level in causing delay in the construction services completion.
Specialist in the construction consultancy services the business activity refers to: (i) technical and scientific consultancy and (ii) assessment and technical analysis. While for the construction work covers: (i) installation, (ii) special construction, (iii) pre-fabrication construction, (iv) building completion, and/or (v) equipment leasing.
- Selection requirement: Only the contractor who has satisfied the required license and documentation (see: question no. 4 below) may participate in the selection of Service Provider, including for the construction project which is funded by the State Revenues and Expenditure Budget (Anggaran Pendapatan Belanja Negara/ “APBN”).
For the construction project which is funded by the APBN, the main contractor (penyedia jasa utama) must also deliver 5 (five) types of guarantees (e.g. offering guarantee) which may be issued by financial institutions (e.g. the insurance company) in form of bank guarantee and/or other binding agreement according to relevant laws and regulations.
As in all countries there are two kinds of contracts:
- Government Contracts (Public Works, Services Related to Public Works and Public Private Partnerships -PPPs) and
- Private Contracts.
Since Mexico is a Federation with 31 states and Mexico City, each State, Mexico City and the Federation, have their own regulations. Therefore Government Contracts, are regulated by the Federal Constitution or the Constitution of each State and/or Mexico city, the respective Public Works Law and their regulations, as well as the applicable Public Private Partnership Laws.
Private Contracts are regulated by the Commercial Code (that applies in all Mexico), as well as by the Civil Code that is applicable in each one of the 31 States and Mexico City.
Legislative obligations applicable to construction and engineering projects vary between norms applicable to public selection processes (general statute of public procurement, the infrastructure law, amongst others) and norms that are directly related to the construction sector.
Regarding the legislative obligations related to the construction sector, it is important to note that there are numerous laws that regulate the sector without differentiating public projects from private projects. To name some of these standards, engineers have their own codes that govern the practice of engineering in Colombia.
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.
Whilst relationships between parties are regulated by contract, there is significant statutory intervention in the areas of:
- security of payment;
- work, health and safety;
- environmental obligations;
- industrial agreements and workplace arrangements;
- misleading and deceptive conduct;
- proportionate liability;
- insurance; and
- unfair contract terms for small businesses;.
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.
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.
The Buildings Ordinance (Cap. 123) sets out various requirements relating to the planning, design and construction of buildings, such as registration and discipline of contractors, approvals for commencing building works and inspections and repairs of buildings.
The most significant legislation is the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”), also known as “the Construction Act”. The Act prescribes an interim payment mechanism (see answer to question 14) and provides a right to refer any contractual dispute to adjudication (to be determined in 28 to 42 days) for most UK construction projects (with certain exceptions). It also provides that a party that has not been paid may suspend work until it is paid. The intention of these measures was to increase cash flow in the construction industry. Parties may not contract out of these obligations.
The Supply of Goods and Services Act 1982 and the Consumer Rights Act 2015 contain obligations on parties providing goods and services that goods must be fit for purpose and services must be carried out with reasonable skill and care. Since construction services combine goods and services, a contractor is thought to owe an obligation to construct a building that is fit for purpose. However, a consultant providing professional services only, must provide these with reasonable skill and care. Parties may vary these obligations by contract.
Specific to residential premises, the Defective Premises Act 1972 provides that all work must be carried out in a workmanlike manner to ensure that all dwellings are fit for habitation.
Statutory and legislative obligations applicable to construction and engineering projects vary by state. Most local jurisdictions have zoning and building code obligations with which each project must comply. In addition, every project must comply with federal and state Occupational Health and Safety Administration (OSHA) requirements, which are described in more detail below. Federal law mandates performance and payment bonds on all federal projects. Most states have similar bonding requirements for state projects. As discussed below, there are also several employment statutes that govern workers on construction projects.
There are numerous other statutory obligations related to construction work in the United States, many of which are discussed below. Engineers, for example, need to be aware of state-specific statutes governing the practice of engineering in each state.
The following laws represent key statutory/legislative obligations relevant to construction and engineering projects:
- Law on Contracts and Tort;
- Law on Planning and Construction;
- Law on Occupational Safety and Health;
- Law on Fire Protection;
- Law on Efficient Use of Energy;
- Law on Environmental Protection;
- Law on the Foundations of Property Law Relations;
- Law on Transfer of Immovable Property;
- Labour Law.
The Civil Code (promulgated by Federal Law No.5 of 1985) underpins and governs contracts in the UAE, including construction and engineering contracts. Articles 872 – 890 of the Civil Code deal with ‘Muqawala’ contracts (a contract to make a thing or perform a task). Parties entering into a construction contract must comply with the provisions set out in these articles which include provisions relating to fair remuneration, subcontracting and termination.
Article 880 of the Civil Code deals with ‘Decennial Liability’. This imposes mandatory joint liability on the contractor and the supervising architect for a period of ten years following “delivery of the work” for any “total or partial collapse of the building” and any “defect which threatens the stability or safety of the building”. This liability is not extinguished even if the defect arises out of a “defect in the land itself” or the Employer “consented to the construction of the defective buildings or installations”. Parties cannot contract out of this liability.
In Germany, construction and engineering projects are governed by a large number of legislative provisions such as the German Federal Building Code (Baugesetzbuch), the building regulations of the federal states of Germany (Landesbauordnungen), the German Civil Code (Bürgerliches Gesetzbuch - BGB) and the Standard Building Contract Terms (Part B) (Vergabe- und Vertragsordnung für Bauleistungen – VOB/B), to name just a few.
The governing provisions are the provisions of the Austrian Civil Code Allgemeines Bürgerliches Gesetzbuch ([German acronym:] ABGB) and the Building Codes of the individual Federal Länder.
French law provides for complex sets of rules and mandatory obligations to be complied with by the parties to construction and engineering projects, for all their aspects (from the initial design to the completion of the works).
The key aspects include inter alia, the obligations to comply with:
- the town planning rules, which regulate the types of construction that can be built, and state the type of planning authorizations (building permits, etc.) to be obtained prior to the start of the works;
- for public projects, the specific rules for public contracts and works (tender rules for the procurement of the contracts, types of contract that can be executed, etc.), which can differ substantially from the rules applicable to private projects. Such public contracts can also fall under the jurisdiction of the administrative courts, which under constitute a separate Court order with a specific case law system. This area is also subject to specific European Union regulations, notably with respect to tender procedures;
- strict regulations relating to health and safety, the protection of the environment and the fight against illegal work, which bind all parties, including the project owner;
- technical rules and regulations, to be complied with by the consultants and contractors for the design and the performance of the construction works;
- mandatory legal provisions aiming to protect contractors and subcontractors, relating to payment guarantees, payment terms, retention provisions and subcontracting;
- mandatory contractors’ guarantees (including the so-called “decennial guarantee” (garantie décennale) mechanism) which aim to cover construction defects for a period of up to ten years from the date of acceptance of the construction works. These guarantees are doubled by the obligation, for the different parties to the construction project, to subscribe mandatory insurance coverage.
Several Greek laws set out both general and specific obligations regarding construction and engineering projects, which shall be met prior to the commencement and remain in force until the completion of such projects. Most importantly, permits related to the execution of the works, such as environmental, building, installation and operation licences, where required, are set as legal prerequisites for the commencement of the works. Further to the above, public projects contractors are subject to mandatory registration with the Greek construction and engineering register, which was reorganised by the recent Law 4472/2017, whereas same law provided that in order for the technical experience earned from the performance of private projects to qualify as reference experience for public tenders, private projects contractors are likewise required to become members of the register. Apart from the necessary permits, construction and engineering projects need to be executed in compliance with multiple requirements, among which those related to employment, health and safety, corruption and finding of antiquities as in more detail described under Question 3 below. Finally, with regard to public works contracts, further obligations are provided for by Law 4412/2016 on Public Supply, Services and Works Contracts (Government Gazette Α' 147/08.08.2016), which transposed Directives 2014/24/EC and 2014/25/EC into national law ('Public Procurement Law').
Government constructions contract are regulated by the Government Tenders and Procurement Regulation of 2006 and mandatory standard form contracts approved by the Ministry of Finance. Private sector contracts are governed by Islamic Law, and, by-and-large, subject to freedom of contract.