Contracts and insurance

Construction contracts

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?

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 general conditions have attained almost universal acceptance among Swedish contractors and employers. However, in their administrative regulations employers normally amend the general conditions to some extent. AB 04 and ABT 06 are supplemented by addenda 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 agreed documents between the employer’s and the contractor’s or engineer’s organisations. The general conditions apply to individual contracts only if there is a reference in the contract to the specific form. As there is no specific statutory law, this is important to bear in mind. The language of the contract must not necessarily be the local language. Furthermore, there are no particular restrictions on choice of law and the venue for dispute resolution. The choice of the parties concerning applicable law is respected by the Swedish jurisdiction. Judgments from all jurisdictions are, however, not enforced by Swedish authorities.

Payment methods

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 by electronic payment.

According to AB 04 and ABT 06, the two basic payment forms are the agreed fixed price and current account. There are also a number of variants of these forms of compensation and other pricing mechanisms, such as incentive agreements. Fixed price means that the contractor will be paid an agreed sum. The price and scope of work is agreed and set out in the contract. Current account means that the contractor gets paid for its costs.

In accordance with AB 04 and ABT 06, the contract price refers to payment for the contract works. Alterations and additions shall be settled by balancing the work added and the work omitted. The contract price shall be paid in accordance with a plan for payment and against an invoice. If there is no plan for payment, the duty of the employer is to make partial payment of the contract price against an invoice for completed contract works. The value of alterations and additions shall be calculated primarily in accordance with the agreed schedule of unit prices, the priced schedule of quantities or other agreed rules of charging.

Any advance payment received on the contract price will be successively balanced by making a special percentage deduction from each partial payment.

After approval of the works the employer may retain 5 per cent of the price of the total works for rectification of defects that have been confirmed in a report on the final inspection. The retainer may last until the defects have been rectified, although not for longer than four months. Thereafter, the employer may retain an adequate amount for rectification of defects that have been confirmed at final inspection until the defects have been rectified or settlement has been carried out.

Works specified in invoices must have been completed when invoicing takes place. Unless otherwise prescribed in the contract, invoices shall be paid within 30 days of receipt.

Contractual matrix of international projects

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?

The most commonly used contractual matrix is a contract between an employer and a general contractor. Swedish employers often prefer to retain the contractor to carry out the design work as well, rather than having to contract with consultant engineers themselves. The general contractor almost always uses various subcontractors to perform parts of the work. The scope of the work carried out by subcontractors is sometimes so large that the general contractor is more a coordinator than an actual contractor.

There is also a widespread use of divided 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, the coordination between the individual contractors will normally encumber the employer.

Construction management is a contract matrix still more spoken of than actually used at present, though it has been used in some larger projects.

PPP and PFI

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

No. However, municipalities can be engaged in PPP projects only if the project is to the benefit of its own inhabitants; for instance, one municipality might be entitled to be engaged in an airport project in a nearby municipality.

Joint ventures

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

According to the main rule in the commonly used standard form AB 04, all members of consortia are jointly liable for the entire project. They may allocate responsibility and liability among themselves only with the express consent of the employer.

Tort claims and indemnity

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?

There is no specific statutory law related to construction. Pursuant to general principles, a subcontractor’s liability can be adjusted, even down to zero, if the general contractor has contributed to damage or loss as a result of its own negligence. Under Swedish law, an action in tort cannot be pursued against a party as an alternative to a claim under the contract. Neither can an employer claim compensation directly from a subcontractor. The employer has to claim compensation from the general contractor who then has to try to recover compensation from its subcontractor.

Liability to third parties

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?

The main rule, which applies to the majority of cases, is that a claim must be founded on a contractual basis, and that no claim can be made in the absence of such a legal relation. Consequently, a buyer or a tenant wishing to raise a claim related to the property constructed by a contractor must rely on the liability of its counterparty, namely, the seller or landlord.

One exception must be made pursuant to the general rule of liability for a person’s or entity’s own negligence. If, for example, the contractor, while carrying out his or her work, causes damage to a tenant’s property through a negligent act or omission, he or she is liable to the tenant, notwithstanding the lack of a contractual relation. Another situation could be if some kind of relationship similar to a direct legal relationship could be construed between the contractor and the third party.

Insurance

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?

AB 04 contains a standard description of insurance coverage, according to which the contractor shall have all-risk insurance against damage caused to the total works. Generally, this insurance includes coverage for damage to the property of third parties, injury to workers or third parties and environmental hazards. It does not, however, cover delay damages, which are normally expressly exempt from coverage. Local law does not limit contractors’ liability for damages.

Law stated date

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5 May 2020