Contracts and performance
Standard contract forms
What standard contract forms are used for construction projects in your jurisdiction? To what extent do parties deviate from these standard forms?
There are no mandatory templates for construction contracts. Governance of mutual rights and responsibilities rests with the contractual parties, taking into account the applicable laws. In accordance with the principle of freedom of contract, the parties may define a legal relationship at their own discretion, unless the objective or content of the contract does not preclude the nature of the relationship, act or social conduct (Article 353 of the Civil Code).
Definition of ‘construction work’
How is ‘construction work’ legally defined?
Article 3(7) of the Construction Law defines ‘construction work’ as “construction, but also reconstruction, assembly, renovation or demolition of a construction structure”. This law also includes definitions of ‘construction’, ‘reconstruction’ and ‘renovation’, among others.
Are there any rules or restrictions on the governing law of construction contracts?
In general, it is up to the contractual parties to decide on the competent law that will govern the construction contract.
Are construction contracts subject to any formal requirements?
Construction contracts concluded under the Public Procurement Law (Article 139(2)) or private law (Article 648(1) of the Civil Code) must be in written form. However, there is a difference in rigour regarding default in concluding a written construction contract: under the Civil Code, it must be in written form under the rule of ad probationem (ie, the consequence of non-compliance is that the testimony of witnesses or the parties as to performance will not be admissible in the case of a dispute); whereas in principle a contract for public procurement must be concluded in writing in order to be valid under the rule of ad solemnitatem (ie, non-compliance results in invalidity).
Are there any mandatory or prohibited provisions in relation to construction contracts?
A construction contract should define the subject of works (ie, what it should involve or result in) and specify remuneration or at least the basis for calculating remuneration (this may be a flat remuneration, estimated cost of remuneration or mixed remuneration). However, in general the parties have extensive competence regarding regulation of the content of the contract. In accordance with the principle of freedom of contract, the parties may define a legal relationship at their own discretion, if the objective or content of the contract does not preclude the nature of the relationship, act or social conduct (Article 353 of the Civil Code).
Can any terms be implied in construction contracts?
As the Civil Code serves as the general regulatory framework for construction contracts, its provisions are used by analogy in respect of other agreements (eg, a contract for specific work – Article 556 of the Civil Code) and general provisions concerning obligations (eg, default interest – Article 481 of the Civil Code). An example of such a provision in a construction contract relates to warranty for defects, which in principle may be modified by means of declarations of the parties where such parties are entrepreneurs (eg, extension of liability beyond the scope of the Civil Code, narrowing or even exclusion of such liability). However, with respect to consumers, the liability period for defects in a building may not be shorter than five years and modification thereto is prohibited (any provision to this effect will be invalid and replaced with statutory provisions). In addition, construction contracts concluded under the Public Procurement Law are subject to mandatory provisions (eg, Article 144d sets provisions for specific contractual penalties in given circumstances).
How are risks typically allocated between parties to construction contracts?
It is up to the contractual parties to define the scope and terms of their contractual liability. On the grounds of civil law, a business entity bears responsibility based on the principle of fault-based liability or no-fault liability, depending on the circumstances. Liability of a contractual party may be complemented by the principle of fairness. Polish law does not define the term ‘fault’; however, fault may be described as unlawful conduct which violates the requirement of precaution adopted in the applicable interpersonal relations. Such a violation is verified with respect to a person who has committed wrongful conduct. Fault may be attributed only to a person who acts with sufficient background and was able to have foreseen their actions.
The investor is liable under the general principles arising out of responsibility for proper cooperation with the contractor in execution of the contract, and in particular for a timely payment of the agreed remuneration. It is generally accepted that the investor is liable for defects of the construction design. Similarly, the investor bears risks associated with weather, soil and hydrological conditions or discovery of archaeological stations in the ground of the investment property. The investor also bears risks associated with the actions of the public administration authorities.
The contractor is responsible for performance of work within the timeframe specified by the parties in the contract, as well as for the quality of work. If the work is not completed within the specified timeframe due to a fault that is non-attributable to the contractor, the contractor will be exempt from liability. However, the case law also acknowledges that the parties may extend the scope of responsibility, excluding certain circumstances, where non-performance of work within a specified timeframe was attributable to the investor and force majeure, although some standpoints allow for extension of the contractor's responsibility for force majeure as a form of warranty liability.
Limitation of liability
How and to what extent can parties to construction projects contractually limit or exclude their liability?
Contractual liability in Polish civil law is governed by the principle of fault (Article 471 and following of the Civil Code). However, the parties may modify their liability in the contract (Article 473 of the Civil Code). For example, the contractor may extend its liability, giving it a warranty nature. The contractor will then basically be responsible for each case of failure to perform work within a specified timeframe (excluding circumstances attributable to the investor or force majeure).
The parties may also define circumstances, principles and penalties for breach of the contractual provisions (in the form of contractual penalties).
How are liquidated damages typically calculated and to which liabilities are they usually applied?
Contractual penalties are agreed between the parties by means of negotiation – they may concern a failure to perform work within a specified timeframe, failure to remedy a defect within a warranty period or a quality guarantee period, or breach of other material obligations defined in the contract. Pursuant to Article 483 of the Civil Code, the parties may reserve in the contract that damage resulting from non-performance or improper performance of a non-monetary liability shall be remedied in the form of a contractual penalty. It is acknowledged in the case law and legal doctrine that the obligation to pay a contractual penalty is not subject to the occurrence of damage, but rather only to the existence of the circumstances provided for in the contract on which payment of a penalty depends (Article 484 of the Civil Code). The amount of penalty (rate), grounds and circumstances must be clearly defined in the contract under pain of invalidity. It may be reserved in the contract that the injured party may claim damages in excess of the contractual penalty stipulated in the contract. A debtor may apply to the court to decrease the amount of the penalty under the court procedure of mitigation of penalty, provided that the obligation has been performed to a large extent or where the amount of penalty is grossly excessive. In principle, payment of the penalty does not release the debtor from performance of their obligation (Article 483 of the Civil Code).
The most common penalty is for delay in performance of work, calculated for each delayed day and a penalty for withdrawal from the contract. Penalty levels are determined either through a percentage reference to the contract value or by providing a specific amount.
Increasingly often, a contract will include a limit on the penalty that one party may impose on the other for breach of contract (eg, 20% of the remuneration).
How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?
The term ‘force majeure’ is not defined in Polish law. Legal doctrine and jurisdiction provide that force majeure constitutes:
- accidental or natural external events;
- events that are impossible (or almost impossible) to be foreseen; and
- events the effects of which cannot be prevented.
No-fault liability (where the entrepreneur may be liable on such basis) is excluded due to the occurrence of force majeure events (Article 435 of the Civil Code).
To remove any doubts concerning interpretation which may arise during performance of a contract, parties usually provide for specific events that will be considered as force majeure – which, if they occur, will not involve liability for damages or contractual liability.
General performance obligations
What are the general performance obligations of contractors and employers?
The most important obligation of the contractor is to perform work in a timely and due manner, while the investor is obliged to pay the agreed remuneration in accordance with the specified terms and conditions of payment.
How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?
Much depends on the provisions adopted in the contract, without which there is generally no legal means or regulation to resolve such situation. In general, investors strive to implement provisions pursuant to which contractors will be obliged in the case of delay in performance of work to:
- increase the speed of work;
- reorganise work at the construction site;
- assign more employees or equipment; and
- implement other changes to the construction work.
Investors also include in the contract provisions for contractual penalties for non-achievement of milestones in the schedule of work, although the right to impose such a contractual penalty on a contractor where construction works are ultimately completed within a contractual timeframe raises significant doubts (courts assume that if the whole contract has been performed in due time, improper performance of an obligation does not occur, therefore the investor should not be entitled to contractual penalties for non-achievement of milestones).
To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?
In general there are no restrictions under civil law on the rights of contractual parties to make variations to the contract, regardless of the stage of contract performance. Any aspect of the contract may be amended – from completion date and remuneration to the terms of contractual liability. The primary rule here is the principle of freedom of contract. If a change does not preclude the nature of the relationship, act or social conduct, it is admissible (Article 353 of the Civil Code).
However, different rules apply to variations to construction contracts concluded under the Public Procurement Law. Pursuant to Article 144 of this law, a contract for a public procurement may be amended only in the circumstances explicitly provided for in the contract and in cases set out in the law (which includes a closed catalogue of situations where variations to a public procurement contract are permitted).
What are acceptable grounds for the termination of a contract?
Under civil law, the parties may terminate a contract by mutual or unilateral declaration of will. The Construction Law does not provide a direct possibility for a notice of contract termination; however, when applying by analogy the Civil Code provisions governing contracts for specific work, the investor has the right to withdraw from the contract where the contractor delays commencement or completion of work to such an extent that it is unlikely to perform the work within the agreed time – provided that the investor has already specified an additional deadline for the contractor (Article 635 of the Civil Code in connection with Article 656 of the Civil Code). Such deadline may not be too short and must be achievable by the contractor. Likewise, the investor may withdraw from a contract or entrust another person with correction or further performance of specific work at the cost and risk of the contractor, if the latter performs work in a defective manner or contrary to the contract. Before exercising this right, the investor must call on the contractor to change the manner of performance and specify an appropriate timeframe for this purpose (Article 636(1) of the Civil Code in connection with Article 656 of the Civil Code).
In addition, pursuant to Article 491 of the Civil Code, the investor may withdraw from the contract if the contractor delays performance of the obligation. The investor should first specify an additional timeframe for the contractor to complete performance, failing which the investor will be entitled to withdraw from the contract. Without specifying an additional timeframe or after failure to complete performance within it, the investor may also demand performance and remedies for damages resulting from the delay. The investor may also withdraw from the contract if the contractor delays only part of the work. In such a case, the right to withdraw from the contract is restricted – at the investor's choice – to either that particular part of the work or the entire remaining part of the non-performance. The investor may fully withdraw from the contract if partial performance would be insignificant due to the nature of the obligation or to the purposes intended for it in the contract, as known to the party in delay.
In addition, Article 395 of the Civil Code provides the possibility to reserve in the contract that one or both parties shall be entitled to withdraw from the contract within a specific time period. When exercising the right of withdrawal, the contract is deemed to be not concluded (the effect of ex tunc) and the parties must return to each other what was provided to them by the other party unchanged, unless the change was necessary in the ordinary course of dealings.
It is common to stipulate in contracts the circumstances giving rise to a right to withdraw from the contract (this applies mostly to investors) – for example, in the event of delay in performance of work specified as an exact number of days in relation to a progress of works determined in the schedule of works, or in the event of filing for bankruptcy.
Notably, the right to make a declaration of withdrawal from the contract is reserved within a timeframe stipulated in the contract; otherwise this right will be invalid.
Remedies for breach
What remedies are available for the breach of construction contracts?
Construction contracts usually provide for contractual penalties in the event of breach of the contract’s specific provisions, or a right to withdraw from the contract. Within the warranty period for defects, the contract may also provide for substitute performance of removal of defects to a third party, at the contractor’s cost and risk, if it fails to remove a reported defect within the specified timeframe.