Contracts and insuranceConstruction 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?
In Dutch construction practice, standard form or model contracts and accompanying general terms and conditions have been developed. Which model contract or set of general terms and conditions is the best to use, depends on, for example, the type of project, its complexity and size, and the commissioning party and its need for innovation and involvement in realising the project. The three most commonly used contracts for consultancy services, construction works and integrated works are those based on the DNR 2011, the UAV 2012 and the UAV-GC 2005, respectively. The general terms and conditions may be deviated from, as is often the case in practice.
There is a considerable degree of freedom of contract concerning contracting parties and the content of contracts for design and construction works pursuant to Dutch law. The contracts can be made in any form; however, written contracts are preferred. Contracting parties have freedom in choosing the language of the contract (not necessarily Dutch).
Contracting parties are, in principle, free to agree on the law governing their construction contract. Usually, Dutch law is chosen as the governing law for projects being realised in the Netherlands. However, without a choice of forum the contract will be governed by the laws of the country in which the contractor is domiciled. Despite another choice of law, Dutch public law will apply to construction projects realised in the Netherlands.
Contracting parties are, in principle, also free to agree whether a dispute will be resolved by the ordinary court or through alternative dispute resolution arrangements. If the parties have not agreed on a forum, the competent ordinary court will have jurisdiction.Payment methods
How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?
In Dutch construction practice, generally, the contract price is paid to contractors and subcontractors in instalments per completed milestone or on a monthly basis. Instalments are usually payable in line with the progress of the work, and contractual procedures on inspection, approval and invoicing must be followed. Payment takes place by means of electronic payment.
Lenders to construction projects typically require that the owners-borrowers inject all of the required equity (ie, sponsor equity) before the credit line can be used for payment of instalments owed to the contractor. Lenders often pay instalments due directly to the contractor.
For payments in advance, principals will stipulate security from their contractors and transfer of title. Contractors do not generally accept payment arrangements on a ‘pay when paid’ or ‘pay if paid’ basis and will stipulate securities from their principal. However, there are no legal restrictions in this respect.
Vendors (suppliers) are usually paid by electronic payment on delivery at the latest. Workers are mostly paid electronically, typically once a month.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 contractual matrix for a construction project in the Netherlands depends on many aspects, such as the scale and complexity of the project, the expertise and the team of the owner, and the envisaged exit strategy.
Traditionally, owners or end-users contract directly with the designers (architect and other consultants) and the general contractor if the project concerns merely the construction of a building. The general contractor will then often engage more than one subcontractor and supplier. Alternatively, one general contractor can be contracted for both the design works and the construction works.
Investors often involve a project developer for the entire project if there is a development risk or a vacancy risk, or both, in addition to the construction risk. If the investor is already the owner or has purchased the property to be developed by means of forward funding, they will stipulate direct agreements or multiparty agreements to be entered into between the investor, the developer and the respective designers and general contractors in the event of the developer’s insolvency.PPP and PFI
Is there a formal statutory and regulatory framework for PPP and PFI contracts?
There is no formal statutory regulatory framework for PPPs and PFIs in the Netherlands. This applies to contracts and the structure of the partnership.
Possible legal forms into which PPPs are legally cast include a jointly established entity, a private limited liability company or a limited partnership, within which the project is executed and both the public and private parties have authority and contribute capital (financing), knowledge or property (land). A PPP can also be structured through a cooperation contract.Joint ventures
Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?
Dutch laws do not provide for specific regulations pertaining to the structuring of consortia for construction projects. Whether the members of a consortium are jointly liable for the entire project or solely for their own contribution usually depends on the requirements of the relevant tender or the result of contract negotiations.
If contractors have jointly submitted a tender or have been contracted for the entire project, they will be jointly liable towards the principal (this may be different if specific arrangements have been made with the principal to that effect). The members of such a consortium will likely have allocated liabilities and responsibilities between themselves.
A consortium may also be structured by means of a legal entity, such as a private limited liability company. In principle, such legal entity will be the responsible party towards the principal.
The liabilities and responsibilities are often divided between the partners based on the expertise or other contributions they bring to the table or simply based on the works they must execute. As joint venture vehicles are often set up for a specific project and do not have endless resources, the principal will likely stipulate that the parent companies provide sufficient security.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?
Under Dutch law, the parties to a construction contract may agree on a full indemnification of either one of them. However, as this would otherwise be deemed contrary to public order and morality, such indemnification does not apply where it concerns the indemnified party’s wilful misconduct or deliberate recklessness. Furthermore, a party cannot invoke an indemnification – or any provision, for that matter – if the result of successfully invoking the indemnification would be unacceptable based on the standards of reasonableness and fairness. In construction practice, the contractor usually indemnifies the principal against claims from third parties in relation to the project.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?
In principle, a contractor is only obliged to perform its obligations towards its principal under the construction contract under Dutch law. However, there are quite a few exceptions to this general rule. For example, if a certain right towards the contractor is attached to the capacity of being the owner of a building, that right may transfer to a third party obtaining the ownership of the property. Usually, the contractor will provide warranties of which both the principal and its legal successors are beneficiaries. To a limited extent, a third party could claim damages based on a tortuous act of the contractor.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?Liability owing to the injury of workers, damage to property of third parties and damage due to environmental hazards
In Dutch construction practice, the insurance most commonly taken out is a construction all-risk (CAR) insurance. This insurance always provides all-risk coverage with respect to damage to the construction work (limited exclusions may apply).
In addition, coverage can be taken out for, among other things, liability of any of the parties involved in the project in relation to property damage (such as damage to adjacent buildings) or personal injury of third parties in connection with the construction works. Liability in relation to injury of workers (generally not qualified as third parties under this section of the CAR insurance) is generally not covered under CAR insurance.
A contractor also often takes out business liability insurance, which provides coverage for liability of the contractor for, and as a consequence of, property damage or personal injury (of workers or third parties). Damage to the property of third parties in connection with the construction works is often excluded in business liability insurance. Additional coverage can be taken out.
Damage to the work itself due to environmental hazards is ordinarily covered under the CAR insurance if it concerns material damage to the work that arose during the construction period. If coverage for the property of the principal is concluded as part of the CAR insurance, damage to property of the principal due to environmental hazards is covered if the environmental hazard causing damage is a sudden uncertain event and this event is not the direct result of a slow process. If the liability section of the CAR insurance is concluded, or if a separate (business liability) insurance applies with coverage for environmental hazards, coverage can exist for damage to third parties due to environmental hazards, but again only if the environmental hazard causing damage is a sudden uncertain event and this event is not the direct result of a slow process.Delay damages
In general, no coverage for liability in connection with delay damages exists under CAR insurance. However, it is possible to take out coverage for delay damages that are the consequence of damage to either the work constructed or to the property of the principal owing to the construction works.
Business liability insurance generally provides coverage in connection with liability for damages as a consequence of property damage caused by the contractor. Liability of the contractor for delay damages of the principal owing to property damage is, therefore, covered as a starting point. However, an exclusion applies in most policies regarding damages as a consequence of damage to the work constructed; although, sometimes this exclusion is removed, especially in business liability policies taken out by contractors.
In addition, if the contractor is responsible for design and professional indemnity insurance that was taken out in that respect, liability for delay damages as a consequence of a design error is, mostly, covered.
If liability for delay damages is covered under any insurance, this coverage is generally limited to the liability that the contractor would have had towards the principal had no provision been included in the construction contract. In other words, liability as a consequence of liability-increasing clauses (such as a penalty clause) is generally excluded.
Dutch law does not limit contractors’ liability for damages, other than general limitations regarding damages that can be claimed by any party (such as a sufficient causal link).
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1 May 2022