Types of financing
What types of financing are used for construction projects in your jurisdiction? Which are the most common? Are there any restrictions on available financing methods?
The most common methods of financing construction works are bank loans, using one’s own funds or availing of EU subsidies.
What forms of security are used in construction project financing?
The most common forms of security used in financing construction works are:
- open notes; and
- assignments of receivables from current and future tenants.
The investor's damages for non-performance or improper performance of the contract may be secured against the contractor by a bank guarantee, insurance guarantee or monetary deposit (ie, the amount retained by the investor from the contractor's partial remuneration). The most common security levels are 5% and 10% of the contractor's remuneration.
In public procurements, there is a catalogue of permitted forms of securing the investor's (ie, contracting authority’s) damages, in which the contractor may lodge a security (Article 148 of the Public Procurement Law).
Pursuant to Article 649 of the Civil Code, the contractor may demand guarantee of payment for construction works (ie, a bank or insurance guarantee).
Methods and timing
What are the typical methods and timing of payment for construction work? Are there any restrictions on ‘pay when paid’ and ‘pay if paid’ provisions? Do any other rules, restrictions or procedures apply?
The most common method is partial payment for completed and accepted stages of works defined in the contract.
Polish law does not provide for ‘pay when paid’ and ‘pay if paid’ provisions.
However, Article 143a of the Public Procurement Law stipulates that payment of the remuneration due to the contractor for accepted construction works is subject to provision of evidence of payment of the remuneration due to subcontractors and further subcontractors (whether in a single payment or paid in instalments). If the contractor fails to provide such evidence, the investor has the right to withhold payment.
How can the contractor secure itself against non-payment by the employer? Under what circumstances can the contractor suspend work for non-payment?
Pursuant to Article 649 of the Civil Code, the contractor may demand guarantee of payment for construction works (ie, a bank or insurance guarantee). It is not possible to exclude or restrict, by means of a contract, the contractor’s right to demand the investor to establish a guarantee for payment for performed construction work. It usually rests with the contractor to secure the investor's claims, also in the case of payment of undue remuneration or its part to the contractor. If a contractor does not obtain a payment guarantee within the timeframe that it has specified (no less than 45 days), the contractor has the right to withdraw from the contract by fault of the investor (Article 649 of the Civil Code).
The investor may not refuse to pay remuneration despite non-performance of construction works if the contractor (ie, general contractor) was prepared to perform the works, but was prevented by reasons attributable to the investor.
Pursuant to Article 651 of the Civil Code, the contractor must notify the investor immediately if the documentation, construction site, machinery or devices provided by the investor are not suitable for proper performance of works, or if there are any other circumstances that may affect proper performance of works. In such case, the contractor shall not be liable for the effects of such obstacles.
How can subcontractors secure themselves against non-payment by the contractor? Under what circumstances can subcontractors suspend work for non-payment?
Similarly, a subcontractor has the right to demand from the general contractor a guarantee of payment for construction works (ie, a bank or insurance guarantee) based on Article 649 of the Civil Code.
On what grounds can payments be withheld?
In accordance with the general rules of obligations, the investor may withhold payment of remuneration if the contractor delays performance of its obligations (Article 488 of the Civil Code). The investor may also withhold payment of the entire remuneration if there are any material defects observed in the works during final acceptance. If minor defects are observed, the investor may withhold payment of the part of remuneration that corresponds to the value of defected works. Removal of defects updates the investor's obligation of payment.
However, the parties to the contract may substantiate withholding of payment of remuneration due to occurrence of specific circumstances – but these circumstances should not favour the investor's position in relation to the contractor.