Contracts and insurance
What standard contract forms are used for construction and design? Should the language of the contract be the local language? Are there any restrictions on choice of law and venue for dispute resolution?
There are two sets of general conditions for construction works: AB 04 General Conditions of Contract for Building and Civil Engineering Works and Building Services for performance contracts, and ABT 06 General Conditions of Contract for Design and Construct Contract for Building, Civil Engineering and Installation Works. for design and construction contracts. These terms and conditions are almost universally accepted by Swedish entrepreneurs and employers. However, in their bylaws, employers normally vary the terms and conditions to some extent. AB 04 and ABT 06 are supplemented by amendments for subcontractors (AB-U 07 and ABT-U 07). ABK 09 is the standard form used in contracts between employers and engineers. All of these standard forms are documents agreed between the organizations of the employer and the contractor or engineer. The general conditions apply to individual contracts only if there is a reference in the contract to the specific form. Since there is no specific law, it is important to keep this in mind. The language of the contract does not have to be the local language. Furthermore, there are no particular restrictions on choice of law and venue for dispute resolution. The choice of the parties concerning the applicable law is respected by the Swedish jurisdiction. Judgments from all courts are not, however, enforced by the Swedish authorities.
How are contractors, subcontractors, suppliers and workers typically paid and is there a standard frequency for payments?
Contractors, subcontractors, suppliers and workers are usually paid by electronic payment.
According to AB 04 and ABT 06, the two basic payment methods are the agreed flat rate and the current account. There are also a number of variations of these forms of compensation and other pricing mechanisms, such as incentive agreements. The fixed price means that the contractor will receive an agreed sum. The price and scope of work are agreed and defined in the contract. The current account means that the contractor is paid for his costs.
In accordance with AB 04 and ABT 06, the contract price refers to the payment for the contract work. Changes and additions will be settled by balancing added work and omitted work. The contract price is paid according to a payment plan and on invoice. If there is no payment plan, the employer’s obligation is to make partial payment of the contract price against an invoice for the contract work completed. The value of changes and additions shall be calculated primarily in accordance with the agreed unit price schedule, quantity price schedule or other agreed pricing rules.
Any deposit received on the price of the contract will be successively settled by making a special percentage deduction on each partial payment.
After approval of the work, the employer may retain 5 per cent of the price of the whole work for the rectification of defects which have been confirmed in a final inspection report. The mandate can last until the defects have been corrected, but not more than four months. Thereafter, the employer may retain an adequate amount for the rectification of defects which have been confirmed during the final inspection until the defects have been corrected or settlement has been made.
Work specified in invoices must have been completed at the time of invoicing. Unless otherwise stipulated in the contract, invoices must be paid within 30 days of receipt.
Contractual matrix of international projects
What is the typical contractual matrix of a major project in your jurisdiction in terms of the contractual relationships between the various participants in the construction project?
The most commonly used contract matrix is a contract between an employer and a general contractor. Swedish employers often prefer to hire the contractor to carry out the design work as well, rather than having to contract with consulting engineers themselves. The general contractor almost always uses various subcontractors to carry out part of the work. The scope of work carried out by subcontractors is sometimes so great that the general contractor is more of a coordinator than a true contractor.
There is also widespread use of split contracts, where an employer engages a number of individual contractors, each having a direct contractual relationship with the employer. If the contract work is divided among several contractors, coordination between the individual contractors will normally hinder the employer.
Construction management is a contract matrix that is talked about even more than it is actually used today, although it has been used in some larger projects.
PPPs and IFPs
Is there a formal legal and regulatory framework for PPP and PFI contracts?
No. However, municipalities can only be involved in PPP projects if the project benefits its own inhabitants; for example, a municipality might have the right to engage in an airport project in a neighboring municipality.
Are all members of the consortia jointly responsible for the whole project or can they divide the responsibility among themselves?
According to the main rule of the commonly used standard form AB 04, all members of the consortia are jointly and severally liable for the entire project. They can divide responsibility and liability only with the express consent of the employer.
Tort Claims and Indemnity
Do local laws allow a contracted party to be indemnified against all acts, errors and omissions resulting from the work of the other party, even when the first party is negligent?
There is no specific statutory law related to construction. In accordance with general principles, a subcontractor’s liability may be adjusted, even down to zero, if the general contractor contributed to the damage or loss through his own negligence. Under Swedish law, an action in tort cannot be brought against a party as an alternative to an action under contract. Nor can an employer claim compensation directly from a subcontractor. The employer must claim compensation from the general contractor, who must then attempt to recover compensation from his subcontractor.
Liability towards third parties
When a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential liability to the third party? Can the third party sue the contractor despite the absence of contractual confidentiality?
The main rule, which applies in the majority of cases, is that a claim must be based on a contractual basis and that no claim can be made in the absence of such a legal relationship. Consequently, a buyer or a tenant wishing to assert a claim relating to the building built by a contractor must rely on the responsibility of his counterpart, either the seller or the lessor.
An exception must be made in accordance with the general rule of liability for a person’s or entity’s own negligence. If, for example, the contractor, in the performance of his work, causes damage to the property of a tenant through negligence or omission, he is liable to the tenant, notwithstanding the absence of a contractual relationship. Another situation could be if a sort of relationship similar to a direct legal relationship could be interpreted between the entrepreneur and the third party.
To what extent do the available insurance products enable the entrepreneur to cover: damage to third-party property; injury to workers or third parties; delay damage; and damage due to environmental hazards? Does local law limit contractor liability for damage?
AB 04 contains a standard description of insurance cover, according to which the contractor must have comprehensive insurance against damage to the entire work. Typically, this insurance includes coverage for damage to third party property, injury to workers or third parties, and environmental hazards. It does not, however, cover delay damage, which is normally expressly exempt from coverage. Local law does not limit contractors’ liability for damage.
Date declared by law
Give the date the above content was accurate.
May 5, 2021.