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EUROPEAN SOCIETY OF CONSTRUCTION LAW CONFERENCE, STOCKHOLM 25 AUGUST 2006 : 

EUROPEAN SOCIETY OF CONSTRUCTION LAW CONFERENCE, STOCKHOLM 25 AUGUST 2006 Ethics in Construction Law: Responses from eight member countries Anthony Lavers LL.B Hons. M.Phil Ph.D MRICS MCI.Arb. Barrister White & Case, London Visiting Professor of Law, Oxford Brookes University Chairman, UK Society of Construction Law 2004-2006

Statement of ethical principles: UK SCL Ethics Group: 

Statement of ethical principles: UK SCL Ethics Group Ethical conduct is the compliance with the following ethical principles: Honesty - act with honesty and avoid conduct likely to result, directly or indirectly, in the deception of others. Fairness - do not seek to obtain a benefit which arises directly or indirectly from the unfair treatment of other people. Fair reward - avoid acts which are likely to result in another party being deprived of a fair reward for their work. Reliability - maintain up to date skills and provide services only within your area of competence. Integrity - have regard for the interests of the public, particularly people who will make use of or obtain an interest in the project in the future. Objectivity - identify any potential conflicts of interest and disclose the conflict to any person who would be adversely affected by it. Accountability - provide information and warning of matters within your knowledge which are of potential detriment to others who may be adversely affected by them. Warning must be given in sufficient time to allow the taking of effective action to avoid detriment. These principles apply to the work of all professionals working in the construction industry, whatever their original qualification or affiliation.

ESCL questionnaire 2005-2006: 

ESCL questionnaire 2005-2006 Retentions Tender evaluation Consultant switches from employer to contractor Fairness in contract administration Contractor’s duty to warn of design defects Termination or variation of contract for employer’s convenience

Responses received: 

Responses received Austria England & Wales France Germany Greece Netherlands Sweden Switzerland

Retentions: 

Retentions Would contractual provision for retention be acceptable?

Retentions: 

Retentions Austria Yes, “The Austrian standard contract provides” (Deckungsrücklass und Haftrücklass) for retentions. England and Wales Yes, “in the UK a retention fund remains a legitimate and largely acceptable contract mechanism” “The current controversy over the system of retention funds has arisen not because of the concept per se, but because of its perceived abuse particularly in delaying the release of the retention monies”. France Yes, “in a construction contract a provision can allow the client to withhold a sum at most 5% of the certified amounts”. “However, the contractor can bring a guarantee … from a financial institution” which the client must accept.

Retentions: 

Retentions Germany Yes, “An agreement of what is called a security retention is quite customary in German construction contract law. Usually a retention of about 5 to 10% of the contract sum is agreed by the parties”. Greece Yes, “Greek legislation on public works provides that a 5% mandatory retention is imposed on every payment certificate”. This also “comprises also usual practice in private construction”. Netherlands Yes, “A contractual provision to the effect that 5% of any certified amounts is withheld until the completion of the work is a generally accepted method of guarantee in the Netherlands”.

Retentions: 

Retentions Sweden Yes, “according to General Conditions (such as AB 92, ABT 94, AB04) such provisions are acceptable”. Switzerland Yes, “In Switzerland, this type of contractual provision is an element of the well-established and widely used standard form contract (the SIA 118 1977/91) where it is referred to as ‘Rückbehalt’ (retention)” “The retention amounts to 10% of the service value at the end of the accounting period … If the service value, however, exceeds CHF 300,000, the retention amounts to 5% of the value”.

Tender evaluation: 

Tender evaluation Can the client normally take account of the contractor’s attitude and record on previous projects?

Tender evaluation: 

Tender evaluation Austria Yes, under Austria’s Procurement Act (Vergabegesetz) the quality of the contractor’s reliability (Zuverlässigkeit) is a valid criterion: England and Wales Yes, “in my experience UK Government agencies and other public sector bodies are already taking previous experiences with contractors into account”. France No, “The protagonists are protected by the principle of equality. Rules can’t disadvantage some of them”.

Tender evaluation: 

Tender evaluation Germany Yes, “Under the German law of procurement the reliability of the tenderer is a tender criterion”. Greece No, “no Evaluation Committee may take account of criteria or factors not listed in the tender documents”. Netherlands No. Even under the previous Aanbestedingsreglement, arbitrators would not allow public authorities to rule against contractors unless explicit selection criteria were used. The EC-influenced 2005 Procurement Regulations regarded the previous regime as too subjective.

Tender evaluation: 

Tender evaluation Sweden Yes, “According to the Swedish Procurement Act and Procurement Case Law the outcome of a lawsuit against a Tender Evaluation Team on the same legal grounds as in Pratt Contractors v Transit New Zealand would probably end in the same way”. Switzerland Yes, “Based on my reading of the recent jurisprudence of the Federal Administrative Court, I would think that it would be considered admissible to take into account experiences made with a tenderer in the course of a previous contract”.

Consultant switches from employer to contractor: 

Consultant switches from employer to contractor Austria No, it would not be possible to change the position. England and Wales Yes, “some projects are specifically designed with this in mind”. France Yes but only in the private sector: “if the contractors, the developer and the (architect’s) company, are … in agreement, they can conclude this kind of contract”. In the public sector, the rules of competition imposed by the Code des Marchés Publics would not allow such an arrangement.

Consultant switches from employer to contractor: 

Consultant switches from employer to contractor Germany Yes “if an architect simply administers the project and thereby succeeds in avoiding any conflicts of interest”. Greece Yes in the private sector, although this is rare “there are no specific limits to his (the designer’s) relationship to the contractor or the developer imposed by the national law”. In the public sector, although in Greek law “there is no specific legal provision that explicitly restricts the initial designer of a project from participation in a consortium with a contractor” nevertheless it may contravene the EU-influenced public procurement principles of fair and genuine competition, equal treatment, proportionality and transparency.

Consultant switches from employer to contractor: 

Consultant switches from employer to contractor Netherlands No “The architect/engineer should not accept this change of role, because here could easily come into being a conflict of interest.” Sweden Yes “The situation is rather common in design and build contracts.” “In Sweden there are no laws or regulations hindering the architect/engineer” in acting for the developer and then the contractor. Switzerland Yes “I do not believe that there would be any arguments based on professional ethics in this type of dispute.”

Fairness in contract administration: 

Fairness in contract administration Can the client appoint a junior employee of his as contract administrator of a traditional construction contract?

Fairness in contract administration: 

Fairness in contract administration Austria Yes. “In Austria, we do not know the typical position of an Engineer (as under FIDIC) as a more or less neutral actor”. England and Wales No. “It creates an impossible situation where the presumption and the reality is that the Engineer is subject to ‘client interference’.” France No “the situation described couldn’t exist in France”.

Fairness in contract administration: 

Fairness in contract administration Germany Yes “The architect cannot and will never take on the role of an intermediary or of a wholly independent person. If a completely neutral intermediary is to be brought in, this requires the consent of both parties. This role, however, is traditionally not the architect’s under German law”. Greece Yes. The client appoints the ‘supervising engineers’ who will undertake monitoring, “the supervision of the work is the responsibility of the contracting authority”.

Fairness in contract administration: 

Fairness in contract administration Netherlands Yes “These functionaries are under Dutch law considered to be representatives of the owner. So the duty of ‘fairness’ as between employer and contractor does not apply beyond the requirements of ‘good faith’. Sweden No “the client/purchaser preferably shall employ a neutral senior manager as Engineer/Architect/Project Manager. If not … it may be a breach of contract”. Switzerland No response.

Contractor’s duty to warn: 

Contractor’s duty to warn Is the contractor obliged to warn of design defects?

Contractor’s duty to warn: 

Contractor’s duty to warn England and Wales Yes “To continue building to a defective design when there is physical danger would be illegal as well as ethically reprehensible”. France Yes. The contractor has “to make the client aware of defects in design work”. Germany Yes. “According to German construction contract law, the contractor is also subject to an extensive obligation to object and notify”.

Contractor’s duty to warn: 

Contractor’s duty to warn Greece Yes “Greek law does not contain an explicit provision with regard to the contractor’s obligation to notify the client of defects in design work. Nevertheless such an obligation has been construed to derive from articles 691 and 699 of the Greek Civil Code and is deemed to constitute a secondary (ancillary) obligation of the contractor”. Netherlands Yes. “The contractor has a duty to warn for shortcomings in things prescribed or made available by the employer, but the roles can be reversed if the level of expertise and knowledge and involvement of the employer are sufficiently high”.

Contractor’s duty to warn: 

Contractor’s duty to warn Sweden Yes. Under the Standard form AB the parties are obliged to “keep each other informed regarding circumstances which may be considered of significance to the Works”. However, note that this only applies “when the contractor discovers (the defect) and there is no obligation to discover and notify”. Switzerland Yes “the contractor has an obligation to advise the owner as to defects in the design” to the extent that he discovers them”.

Termination or variation for employer’s convenience: 

Termination or variation for employer’s convenience Does the client normally have unlimited powers to terminate or vary the contract without good reason?

Termination or variation for employer’s convenience : 

Termination or variation for employer’s convenience Austria Yes but if the client terminates the contract without reason, the contractor would have the right of compensation for losses. England and Wales No although it would be possible for a contract to give such powers if it was genuinely agreed. In practice, no contractor would agree to such provisions. France No Article 1134 of the French Civil Code provides that agreements ‘can only be revoked by mutual assent or for causes which the law authorises’. Contractual freedom has never been absolute under French law.

Termination or variation for employer’s convenience: 

Termination or variation for employer’s convenience Germany Yes “Basically, the employer is always entitled unilaterally to terminate a building contract … However, if the termination is not justified on substantial grounds, which are the responsibility of the contractor, then the employer alone will bear the financial consequences of the termination with notice. Greece No. Although Article 700 of the Greek Civil Code authorises the employer to terminate a contract for work at any time up to its completion, which can extend to cases where the contractor is not at fault, “the client may not exercise his aforementioned right abusively and in a manner contrary to the principles of good faith”. Compensation would be payable to the contractor if such a right is exercised.

Termination or variation for employer’s convenience: 

Termination or variation for employer’s convenience Netherlands Yes. Article 7: 764 of the Dutch Civil Code provides that “The employer has at all times the authority to end the contract wholly or in part”. Sweden Yes. “The Employer can generally act as he wishes but has to compensate the Contractor”.

Conclusion: 

Conclusion All 8 responding countries are familiar with the retention mechanism and it is widely regarded as acceptable at a level of about 5%. In France, Germany, Greece and The Netherlands, alternative forms of security may be taken instead.

Conclusion: 

Conclusion There were notable differences on tender evaluation, with Austria, England and Wales, Germany, Sweden and Switzerland allowing past experiences of contractor’s attitude and claims consciousness to be taken into account in the tender process. In France, Greece and The Netherlands they would not generally be allowed.

Conclusion: 

Conclusion Most of the countries could accept a designer switching from employer to contractor, although there were doubts in Austria and The Netherlands and it would not be allowed in the public sector in France.

Conclusion: 

Conclusion On fairness in contract administration, Austria, Germany, Greece and The Netherlands had no difficulty with the idea of a client representative administering the contract. This would constitute a problem in England and Wales, France and Sweden.

Conclusion: 

Conclusion A contractor’s duty to warn of design defects was found in all respondent countries, although differences were noted in the position of the contractor if the client ignores the warning.

Conclusion: 

Conclusion Real differences were evident in the owner’s powers of termination / variation for convenience, with more power apparent in the hands of the owner in Austria, Germany, The Netherlands and Sweden, although this would not prevent contractors from claiming compensation for their losses.

Conclusion: 

Conclusion The individual national Societies of Construction Law can provide access to high quality information on construction law in member countries and ESCL is in a unique position to commission comparative research through its members.

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