At a glance: construction contracts and insurance in Switzerland

Contracts and insurance

What standard contract forms are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

In Swiss construction and design contracts, the standard terms issued by the Swiss Society of Engineers and Architects (SIA) are widely used. There are different rules for different types of work. For instance, the SIA Standard 118 is relevant for construction contracts. For contracts with architects or construction engineers, on the other hand, SIA regulations 102 and 103 respectively are used.

Public entities typically use the standard forms established by the Coordination Conference of the Construction and Real Estate Agencies of the Public Principals (see www.kbob.admin.ch/kbob/de/home/publikationen/beschaffungs--und-vertragswesen.html).

Contracts are typically drafted in the local language spoken at the place of performance (ie, German, French or Italian) or in English. However, the contract parties may opt for any other language as there are no relevant restrictions under Swiss law. If a non-local language is used, the parties need to be aware that the contract and its schedules may have to be translated if a dispute is brought before a Swiss state court.

There are no restrictions on the choice of law or the venue for dispute resolution.

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

Contractors, subcontractors, vendors and workers are typically paid electronically. Cheques are rarely used and cash payments would also be rather unusual.

Payments to contractors and subcontractors are either made in accordance with a pre-agreed payment schedule (typically linked to the completion of certain milestones) or – mainly in cases of smaller contract values – upon completion of the works. Vendors are usually paid within 30 days of delivery of the products ordered. Workers (employees) are paid a monthly salary, which usually becomes due around the 25th day of the month.

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants?

In a major project, the owner typically enters into a total contractor agreement or a general contractor agreement. The relevant total contractor or general contractor then retains its subcontractors as it deems necessary. These subcontractors, however, do not have a contractual relationship with the owner.

Moreover, the owner will regularly appoint an independent consultant who represents it on the construction site when dealing with the total contractor or general contractor.

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

Cooperation between the public and private sectors has a long tradition in Switzerland. However, formalised forms of cooperation have not yet been established. Accordingly, there is no formal statutory and regulatory framework for PPP or PFI.

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

A consortium under Swiss law usually has the form of a simple partnership (article 530 et seq of the Swiss Code of Obligations (CO)). As such, it constitutes a contractual relationship and is not itself a legal entity. Absent any agreement to the contrary, members of the consortium are jointly and severally liable and responsible for obligations of the consortium in relation to third parties contracted jointly or through representatives (article 544(3) CO). The members of the consortium may allocate liability differently. However, third parties are not bound to this allocation unless agreed otherwise.

If a legal entity (corporation or limited liability company) is set up to form a joint venture, the relevant entity alone will be liable towards third parties.

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

Generally, a contracting party is liable for any damage caused to the other contracting party owing to its non-performance or improper performance, unless it can demonstrate that it has not acted wilfully or negligently (article 97 CO). If the injured party has acted with negligence, the damaging party’s liability will not be forfeit but the competent court has the right to reduce the compensation owed to the injured party as it deems appropriate.

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity?

If a building is sold after its construction, the purchaser will typically ask for the seller’s warranty claims against the contractor to be assigned. Consequently, the contractor may become directly responsible towards the purchaser of the building. In addition, if construction defects cause injuries, the contractor may be held liable under criminal law or tort law. Under certain conditions, these claims may be made even if the injured person has no contractual relationship with the contractor.

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards? Does the local law limit contractors’ liability for damages?

All of these insurance products are available. The law does not provide for a statutory limit of the contractor’s liability for damages. However, contractually, such limitations may be agreed, though they do not apply to third parties or in cases of wilful misconduct or gross negligence.

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31 May 2021