A construction assignment to a contractor is considered a contract for work. This is an agreement whereby the contractor, on the instructions of the client – outside of employment – realizes and delivers a work of material nature. The legal relationship between the client and the contractor is – unless otherwise agreed – governed by the statutory rules for contracting work. This concise legal regulation can be found in the first section of title 7.12 of the Dutch Civil Code (art. 7:750 ff. of the Civil Code). This article explains the rights, obligations and liabilities of the parties to contracting work on the basis of the statutory regulations.
Contractor’s rights and obligations in a construction project
Under the statutory scheme, the contractor has only two obligations. Firstly, he has to complete and deliver the work and secondly, he has to warn about obvious shortcomings in the design or regulations that come from the client. In short, the contractor has a delivery obligation and a warning obligation. The contractor’s delivery obligation means that if he builds according to the client’s design he must carry out the construction work as indicated in the specifications and the drawings and possibly according to the instructions of the management. Only when the contractor builds according to his own design does he also have the obligation to hand over the work in accordance with the requirements of good and sound workmanship. The work must be suitable for its normal purpose and must meet any further quality requirements which the client set when the contract was granted. In such a case, it can be said that there is an obligation to produce a certain result. After all, only then does the contractor have full control over whether a sound result can be achieved.
The duty to warn is a refinement of the obligation to deliver. The contractor must warn of any design faults or incorrect instructions on the part of the client that he could reasonably have recognized. If the contractor builds to a design originating from the client’s side, the responsibility for the design lies with the client. A good performance of the contractor’s duties entails that he does not execute the design blindly, but first takes a good and critical look at it. However, this does not mean that he has to redo the work of the architect. The contractor must test the design against the standards that apply in construction. The duty to warn is thus derived from the obligation of careful execution by the contractor. This duty to warn on the part of the contractor already applies at the time of entering into the agreement, i.e. before the actual construction work begins.
Contractor’s responsibility for building materials and auxiliary persons
During construction, the contractor is responsible for the materials he uses and the subcontractors or auxiliary persons he engages. This may be different if a defect arises as a result of building materials, subcontractors or suppliers prescribed by the client. In short, such a defect is attributable to the client and he cannot hold the contractor liable for it.
Responsibility for warning of cost-increasing circumstances
After entering into the building contract, the contractor also has an obligation to warn of cost-increasing circumstances, such as unexpectedly rising construction costs. If the contractor should not have taken the cost-increasing circumstances into account when concluding the construction contract, he can ask the court to increase the price the client has to pay. The contractor can only claim the price adjustment from the court if he has warned the principal in time about the cost-increasing circumstances. After all, the principal must have been given the opportunity to limit or simplify the contract, for example by choosing other materials or not to have certain parts of the work performed. The contractor may adjust the price which the principal must pay without the intervention of the courts if the cost increase is the result of incorrect information provided by the principal which is relevant to the determination of the price, unless the contractor should have discovered the incorrectness of that information before the price was determined.
Who pays for additional work when contracting for work?
If a client wants to make additions or changes to the agreed work, there may be additional or reduced work. Additional work is an extension of the specifications. Reduced work involves a reduction of the specifications. Based on the law, the contractor can only claim an increase in the price from his client in connection with additions or changes to the work if he has informed the client in good time of the need for a resulting price increase. This is only different if the client himself should have understood that the adjustments would lead to a price increase. This is the case, for example, if the client suddenly wants golden taps installed everywhere instead of standard taps. The client must then understand that he will have to bear the extra costs involved. It is not permissible to deviate from the statutory regulation that requires the contractor to warn of the costs of the additional work that are not obvious to the client before he can charge for them. On the other hand, it is not required that the contractor make such a warning in writing. The latter is often wise. After all, it often happens that after completion a discussion arises about whether or not to pay for the additional work. You can read more about who should foot the bill for additional work in the article “When are the costs of additional work to be borne by the client in the case of contracting work?”
Rights and obligations of the client during the construction process
Against the contractor’s obligation to complete the work is the client’s obligation to pay a price as a result. Often a fixed price will have been agreed prior to the work; the contract price. If no contract price has been agreed, the contractor is entitled to a reasonable price under the law. In determining a reasonable price, account is taken of the prices usually stipulated by the contractor and the expectations he has aroused with regard to the presumed price. If no price agreement has been made, but the contractor has stated a recommended price, the law stipulates that the contractor may not exceed the recommended price by more than 10%. However, the 10% limit may be exceeded if the contractor has given timely warning of the excess. After such a warning the client then has the opportunity to limit or simplify the work.
If it is difficult for the contractor to estimate in advance what the costs of the materials and the execution of the work will be, the work can be carried out ‘on a cost-plus-basis’. The contractor then receives a fee for the costs incurred, such as labor and materials to be increased by a profit percentage. Sometimes the choice is also made to carry out the work on a cost-plus basis, because it is expected that the costs to the client may be lower than if a fixed price is agreed in advance.
Completion in case of contracting work
As described above, the contractor is obliged to deliver the work. The law states that the completion procedure starts with the contractor’s notification that the work is completed. Usually, the parties then agree on a date when the completion of the work will take place. The client must then inspect the work. He can then accept the work (possibly subject to the repair of defects) or refuse it, indicating the defects. If the client does not inspect the work within a reasonable period of time, the client will be deemed to have tacitly accepted it. After completion, the work will be at the client’s risk. After completion, the contractor will no longer be liable for defects that the principal should reasonably have discovered at the time of completion. The time of completion is therefore important for both parties. It is therefore wise to check the work carefully and to note down any completions points accurately on the completion report.
The contractor remains liable for hidden defects even after completion. Think, for example, of defects in the construction. The principal can also claim against the contractor after completion. The contractor must first be given the opportunity to repair the defects. Only if the costs of repair are so high that the contractor cannot be expected to carry out the work, will the principal have to settle for compensation.
Limitation of legal action after delivery
A legal claim for a defect in the completed work lapses two years after the client has complained to the contractor about that defect. If the client has subsequently granted the contractor a period of time to remedy the defect, the limitation period only begins to run at the end of that period or if the contractor has refused to remedy the defect. In any event, a legal action is time-barred after a period of twenty years from the date of completion.
End of the building contract
A building contract can also end before completion has taken place. The principal may terminate the building contract in whole or in part at any time. However, the client must then pay the entire agreed price, reduced with any savings made by the contractor as a result of the termination. If no price agreement has been made, the contractor, after notice of termination by the principal, is entitled to the costs incurred, compensation for hours worked and the profit that the contractor would have made on the entire work.
The principal may also have the construction contract terminated by the court if it has become clear to him that the contractor will not deliver the work (on time) or not properly. The contractor, in turn, can also apply to the court to have the building contract rescinded. He can do this if it becomes clear that the principal will not comply with his obligation, for example because he has stopped paying or if there is force majeure, as a result of which the contractor can no longer be required to complete the work.
General terms and conditions for contracting work
General terms and conditions are widely used in the construction industry. The most commonly used (and recent) general terms and conditions for contracting work are the Uniforme Administratieve Voorwaarden voor de uitvoering van werken en van technische installatiewerken 2012 (UAV 2012). The UAV 2012 regulates the legal relationship between the principal and the contractor according to the ‘traditional model’. In other words, the principal gives the contractor a design and the contractor carries out the work according to the design. If a building contract is concluded between a contractor and a consumer, the Consumentenvoorwaarden Verbouwingen van Stichting BouwGarant (Covo2010) are often declared applicable.
Real estate lawyer in Rotterdam
The real estate lawyers at LVH regularly assist contractors, construction companies or principals in connection with contracting work. On the one hand they advise on the conclusion of a good building contract. On the other hand, they also assist parties in disputes about additional work (and its payment) and discussions about any defects and whose risk they are. In such situations it is always important to know which party has the burden of proof. Do you have any questions about contracting work? Please contact Yvonne Jansen at jansen@lvh-advocaten.nl.
