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?

The standard form regulations issued by the Swiss Society of Engineers and Architects (SIA) (www.sia.ch) are the most popular standard forms of contract used in practice, particularly by architects, engineers and contractors.

The blanks of the standard forms and multiple-choice questions must first be completed by the parties, so the standard form can be adjusted to the relevant construction project.

In view of the multiple types and characteristics of construction projects, the standard forms are usually amended by the parties in order to fit the actual construction project or to balance out standard clauses that may be deemed too favourable to architects, engineers and contractors.

The forms and terms issued by the International Federation of Consulting Engineers are also commonly used for the works of international organisations typically located in Geneva.

Definition of ‘construction work’

How is ‘construction work’ legally defined?

Swiss legislation contains no legal definition of ‘construction work’.

However, SIA Norm 118 (ie, the SIA norm regarding the general conditions applicable to construction work performance) – which is included in most contractor agreements by the parties – states that:

one executing work of construction erects a work according to Art. 363 of the Swiss Code of Obligation (OR); his work is either a complete work of construction (surface or engineering construction) or only part of a work of construction (e.g. masonry or plastering, sanitary installations).

Article 1(2) of SIA Norm 119 specifies that a “work is also the result of repairs, structural alteration or demolition".

Governing law

Are there any rules or restrictions on the governing law of construction contracts?

There are no mandatory restrictions regarding the governing law applicable to construction contracts, the parties being free to agree on the governing law of their choice. Generally, the parties agree that the construction contract be subject to and governed by Swiss law to the exclusion of its principles on conflicts of law and the United Nations Convention on Contracts for the International Sale of Goods.

Formalities

Are construction contracts subject to any formal requirements?

There is no formal requirement applying to construction contracts, except where the construction agreement concerns both the performance of construction works and the sale of the property (ie, a turnkey sale). In such a case, some of the provisions regarding the construction work are subject to the authentic form (ie, before a public notary). Architect agreements and pure construction agreements can be tacitly concluded.

Mandatory/prohibited provisions

Are there any mandatory or prohibited provisions in relation to construction contracts?

Most of the legal provisions applicable to construction contracts are not mandatory and may accordingly be freely amended by the parties, within the limits of general legal principles such as Article 27(2) of the Civil Code which prohibits any party from undertaking a commitment surrendering its freedom or restricting its use to a degree that violates the law or public morals.

Further, public bodies are subject to special and mandatory rules, implying, under certain conditions, a competitive call.

Implied terms

Can any terms be implied in construction contracts?

The common law concept of ‘implied terms’ does not exist under Swiss law. In case parties have not regulated certain issues in their contract, the legal provisions on the contractor’s contract will apply (ie, Articles 363 to 379 of the Code of Obligations).

Further, given that no formal requirements apply to construction contracts, some terms may be implied if they correspond to the real willingness of the parties. In practice, the real willingness of the parties regarding implied terms may be difficult to prove.

Risk allocation

How are risks typically allocated between parties to construction contracts?

The contractor is responsible for carrying out the construction work without defect, according to the technical description and plans of the work, within the schedule and price agreed between the parties. The employer is responsible for paying the contractor pursuant to a payment schedule agreed between the parties. The following events generally allow the contractor to seek for a deadline extension and an increase in price:

  • exceptional circumstances (ie, force majeure and adverse weather conditions); and
  • a variation order regarding the contractual construction work to be performed.

With respect to force majeure events, the parties are free to allocate the related risks in the contract. If they do not regulate this topic in the contract, some legal provisions of the Code of Obligations apply. For example, Article 376 of the code provides that if the work is destroyed by accident prior to completion or delivery, the contractor is not entitled to payment for work done or expenses incurred. Article 378 states that where completion of the work is rendered impossible by an occurrence affecting the employer, the contractor is entitled to payment for the work already completed and for expenses incurred that were not included in the price. The contractor may further claim for compensation if such impossibility is due to the employer's fault. Further, pursuant to Article 373(2), in case of lump-sum contracts, force majeure events may be grounds for increasing the price or for termination.

Limitation of liability

How and to what extent can parties to construction projects contractually limit or exclude their liability?

Parties may exclude or limit liability, but provisions limiting liability for unlawful intent or gross negligence in advance are void (Article 100(1) of the Code of Obligations). A further potential limitation to the contractual allocation of risks lies in Article 27(2) of the code, which prohibits any party from undertaking a commitment surrendering its freedom or restricting its use to a degree which violates the law or public morals. 

Liquidated damages

How are liquidated damages typically calculated and to which liabilities are they usually applied?

Liquidation damages in construction contracts usually apply to the contractor's liability for delay. It is common practice for the parties to provide for an amount per day, week or month of delay due by the contractor to the employer as liquidated damages in case of delay with respect to the agreed delivery date (or intermediate stages of the construction work). The amount of liquidated damages may be a lump sum set in relation to the total price of the work, or it may correspond to the estimated rental losses. Such provisions – which constitute a contractual limitation of liability to the agreed amount of liquidated damages – are upheld by the courts to the extent that they are reasonable. Failing penalty language, general principles of the Code of Obligations apply, with the damaged party bearing the burden of proof of its damage.

Force majeure

How are force majeure clauses treated in your jurisdiction? Is there a legal definition of force majeure events?

A force majeure event entitles the parties first to adapt the price of the construction works. Termination of the construction agreement is possible in such cases only if the court rules so (ie, when, even with a price adaptation, the execution of the contract cannot be reasonably required).

Swiss legislation contains no legal definition of ‘force majeure’. However, SIA Norm 118 (ie, the SIA norm regarding the general conditions applicable to construction work performance) sets forth some examples of force majeure (eg, war, insurrection and natural disaster).

The parties usually include a definition of ‘force majeure’ in the construction contract, which often refers to a list of events considered to be force majeure events and their consequences.

General performance obligations

What are the general performance obligations of contractors and employers?

Pursuant to Article 363 of the Code of Obligations, a contractor agreement is a contract whereby the contractor undertakes to carry out work and the employer undertakes to pay the contractor for that work.

The contractor’s main obligation is to carry out the work:

  • with due care;
  • in person or under its personal supervision (unless the nature of the work is such that personal involvement of the contractor is not required);
  • without defect (ie, as agreed between the parties);
  • within the time set; and
  • within the agreed, announced or estimated price.

The contractor must supply the resources, tools and machinery necessary for performance of the work at its own expense, unless otherwise required by agreement or custom.

The employer’s main obligation is to pay the contractor for the performed work at completion or delivery of the work, or according to a payment schedule agreed between the parties.

Project delays

How are project delays typically handled? Do any set rules, restrictions or procedures apply in this regard?

It is common practice for the parties to provide for liquidated damages (ie, penalty amount per day, week or month of delay) owed by the contractor in case of delay in the final delivery of construction work. Such liquidated damages sometimes apply to delays in the delivery of intermediate stages of work.

For the surplus, the standard provisions of the Code of Obligations regarding default of the debtor apply (ie, Articles 102 ff). 

Contract variations

To what extent can the parties make variations to the contract? Do any set rules, restrictions or procedures apply in this regard?

The parties are not usually allowed to make unilateral variations to the contract without the agreement of the other parties. Such variation – which mostly consists of a variation of the contractual work to be performed – requires the execution of a written amendment between the parties detailing price, schedule and other terms and conditions applicable to the variation.

Either party may seek a judicial adaptation of the contract in case of an extraordinary change of circumstances (clausula rebus sic stantibus), it being specified that such judicial adaptation is very restively admitted by Swiss courts.

Termination

What are acceptable grounds for the termination of a contract?

The employer may withdraw from a contractor agreement at any time before the work is completed, provided that it pays for work already completed and indemnifies the contractor in full (loss of gain indemnity). The employer may also withdraw from the contract before or after completion if an agreed estimate is exceeded by a disproportionate amount through no fault of the employer. However, such withdrawal is very restrictively admitted by Swiss courts. Extraordinary circumstances (eg, force majeure) entitle the parties to first adapt the price. Termination is possible in such cases only if the court rules so (ie, when even with a price adaptation, the execution of the contract cannot be reasonably required).

Further, it is common practice for the parties to contractually agree on a list of events qualifying as acceptable grounds, which entitle each party to the possibility of an early termination of the contract, such as insolvency or bankruptcy of a party, repeated and serious breach of the contract or a major delay in the delivery of the work.

Remedies for breach

What remedies are available for the breach of construction contracts?

Either party may claim for damages before the civil court in the event of a breach of construction contract. The damages due to a breach of contract are calculated by comparing the injured party’s hypothetical financial situation if the contract had been properly fulfilled, with the injured party’s actual financial situation. The difference constitutes the damage to be compensated by the party in breach of the contract, which may include lost profits. Regarding the contractor’s liability for defects of the works, Swiss legislation provides for a special liability regime, which also includes lost profits if the contractor is at fault (Article 368 of the Code of Obligations). It is standard practice for the parties to contractually exclude recovery of lost profits, as Article 368 of the code is not mandatory. However, liability cannot be excluded in cases of unlawful intent or gross negligence (Article 100(1)).