Regulation of Construction Contracts in Denmark Except for procedures based on the Public Procurement Directive and the Danish Procurement Act, no specific Danish legislation exists on the matter of Danish construction contracts. These agreed documents are used on both small private construction agreements and major construction contracts, irrespective of the nationality of the contractor. AB 92, ABR 89 and ABT 93 govern the interests of both the contractor and the entrepreneur or the contractor and the technical adviser, respectively, and are up to date with any problems that may occur. However, an agreed document should not stand alone, and the parties should add or remove provisions in order for the agreement to fit the matter between the parties perfectly. Thus, the parties in Danish construction contracts often make general and special provisions.
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Nordhavn waterfront city district in Copenhagen. The Port of Aarhus. The Odense project. Procurement arrangements 2.
Which are the most common procurement arrangements if the main parties are local? Are these arrangements different if some or all of the main parties are international contractors or consultants? New legislation on public procurement means that projects since have been offered a number of new opportunities. The market is still embracing the new tools, but work is in progress to establish experience in the sector.
Local national projects are still mainly based on the following standard contracts: AB92 general conditions for works and supplies. ABT93 general conditions for turnkey contracts. ABR89 general conditions for engineering projects. The general conditions are drafted by representatives of Danish construction associations and make up a set of rules which parties can agree to apply with specific additions or deviations as appropriate.
Construction and consultancy contracts are almost always based on the AB conditions and, for consultancy contracts, the standard specification of services. Transaction structures 3. What transaction structures and corporate vehicles are most commonly used in both local and international projects?
Local projects Consortia can be established for large projects, joint ventures. This is to achieve the required capacity and risk sharing in connection with tenders and implementation of the project. Danish law requires that the members of consortia undertake joint and several liability.
However, Danish competition authorities focus sharply on project consortia because they can restrict competition. International projects Finance 4. How are projects financed? How do arrangements differ for major international projects? Financing varies greatly but the traditional model is to take out a building loan typically from a bank which is used to cover contractual payments during construction. When building is completed, the financing arrangement is converted into a special Danish mortgage.
Security and contractual protections 5. What forms of security and contractual protections do funders typically require to protect their investments?
The guarantee is then released five years after handover, unless the client claims for remedy of defects. The guarantee must be provided not later than eight working days after the demand is issued. Consultants are not typically required to provide security.
Typically, the parties cannot assign their obligations without the consent of the other party. To the extent that it is customary or natural to do so, a contractor can have work carried out by subcontractors. In certain cases, a client will be entitled to raise an independent claim for defects directly against the performing contractor, for example, if the main contractor has been declared bankrupt or is otherwise insolvent.
The contractor must ensure that suppliers accept direct claims from the client. The suppliers must also accept that disputes about defects may be brought before an arbitration tribunal the same tribunal venue agreed between the client and the contractor. Standard forms of contracts 6. What standard forms of contracts are used for both local and international projects? Which organisations publish them? Some private clients tend to apply a number of additions and deviations, which can contribute doubt as to their interpretation.
In public contracts, clients can only make exceptions to the standard terms for specified reasons. In recent years, there have been several customised forms of co-operation, ranging from early call for tenders with early contractor involvement to ordinary public private partnerships and tailored leases with long-term lease agreements.
International projects Danish standard contracts are used in certain international projects, but there is a clear trend in favour of using the International Federation of Consulting Engineers FIDIC red, yellow and silver books. Other international standard forms such as NEC are very rarely used. What risks are typically allocated to the contractor?
How are these risks offset or managed? Liability for the performance of the work lies with the contractor. This includes in principle liability for defects in materials and performance.
In certain situations, a contractor can incur a design liability. Apart from turnkey contracts, this applies if the contractor, by specific agreement or in the construction phase, undertakes actual design tasks.
In addition, the contractor bears the risk of the general and extraordinary price fluctuation of materials and variation in the costs of equipment and manpower. This is usually agreed for construction projects lasting more than a year. The contractor will be liable for delay where it has no right to claim an extension of time. Excluding liability 8. How can liability be excluded or restricted under local law? This limitation of liability does not apply where the contractor acts intentionally or with gross negligence, or where the contractor is liable for product liability.
Agreements on exclusion of liability for gross negligence or intent will be set aside by a court of law or arbitration tribunal. Liability can be limited by time. The provisions are specific to the AB conditions and is unlikely to apply to construction where the AB general conditions have not been agreed.
Caps on liability 9. Do the parties usually agree to a cap on liability? If yes, how is this usually fixed? What liabilities, if any, are typically not capped? It is more common in the area of consultancy, where the liability amount is often capped according to the insurance coverage.
Force majeure Are force majeure exclusions available and enforceable? Compared to the force majeure concept under the law of obligations, section 24 is an extension in that it covers circumstances that are not traditionally considered force majeure, such as unusual weather conditions and vandalism. Material delays What contractual provisions are typically negotiated to cover material delays to the project? These provisions include rules on: Liability for delays attributable to the fault or negligence of a party.
The distribution of risk for delays caused by accidental events. Extensions of time. Financial compensation. The contractor is liable for a delay unless it falls within circumstances entitling an extension of time. These circumstances include: Changes in the nature and extent of the work required by the client. Delays caused by another contractor. The contractor will also be entitled to an extension of time for: Force majeure.
Unusual weather conditions. For delays with no entitlement to a time extension, the contractor will be liable in damages to the client. It is common practice for contracts to stipulate that in these situations damages must be liquidated. Where the contractor is entitled to an extension of time, it will also be entitled to a claim for financial compensation from the client. However, the contractor will not be entitled to financial compensation if the delay is caused by force majeure or unusual weather conditions.
Material variations What contractual provisions are typically negotiated to cover variations to the works? It is a fundamental condition of Danish construction law that the client must provide unambiguous project information to the contractor so it can submit a tender and that the information must contain a clear description of the services to be provided by the contractor.
However, it is a condition that any change is naturally linked to the services described in the original contract.
This condition is construed widely, but its specific interpretation depends on the actual circumstances of each particular case. Changes must also adhere to the general rules of procurement based on EU directives. The contractor is both entitled and obliged to carry out the changes required by the client. The contractor is entitled to additional payment and, if relevant, an extension of time in connection with changes that increase its obligations.
However, the contractor will be entitled to financial compensation corresponding to its loss of profit due to the reduction. It is common practice, particularly in international projects, that the contract includes additional explicit terms on how to deal with them. Other negotiated provisions What other contractual provisions are usually heavily negotiated by the parties?
In most construction projects both parties will use these standard provisions with relatively few changes. The Danish Construction Association Dansk Byggeri , which represents a large number of contractors, has drawn up a set of standard safeguard clauses for the standard conditions which apply to various industries, and these clauses are typically accepted by clients.
The clauses are mostly to provide clarity and do not constitute material changes to the distribution of tasks and risks under the AB rules. Clients with public contracts including state, regional and municipal contracts must by law use the AB provisions and can only derogate from them when justified by specific circumstances in each particular case. Clients with private contracts can derogate from the AB provisions at their discretion, but it is rare.
In large and international projects, contracts are typically based on internationally recognised forms, such as the International Federation of Consulting Engineers FIDIC.
Architects, engineers and construction professionals
ABT 93, Almindelige betingelser for totalentreprise
Forsikring til bygge- og anlæg
Tidsfristforlængelse og dagbod ved totalentreprise
Forskel på entrepriseformer: Totalentreprise eller selvbyg?