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The construction contract: three contract variants and their differences

A construction contract is concluded for various construction projects between employer and employee - whether new construction, renovation or individual services on a building. We explain here which contract variants and content differences exist.

The construction contract: three contract variants and their differences
The construction contract: three contract variants and their differences

When deciding to enter into a construction contract with a company, you should allow yourself enough time - even if the realization of the dream of owning your own home is finally within reach and actually cannot go fast enough. But there are big differences depending on which version of the building contract you choose. These three types of contract are possible: construction contract according to BGB, VOB contract and consumer construction contract.

Construction contract according to the civil code

What is a construction contract according to the German Civil Code?

The definition of a construction contract according to the German Civil Code (BGB) is as follows:

"A construction contract is a contract for the production, restoration, removal or conversion of a building, an outdoor facility or part of it." (BGB § 650a (1))

Since January 1, 2018, the construction contract has been a legally standardized, special form of the contract for work according to the German law of obligations. A construction contract is between a client (customer) and a contractor (entrepreneur) for production (new construction), restoration (repair), demolition (Demolition or dismantling) or reconstruction of a structure, an outdoor facility or part of it (e.g. bricklaying, painting, sanitary facilities, electrical installation, heating construction) closed.

The law understands the term “building” to mean civil engineering: In addition to buildings, bridges, tunnels and roads are also affected. Outdoor facilities are property areas (e.g. parking lot or green space). The construction contract is always designed for a specific result, known as a work in technical jargon.

How is a construction contract concluded in accordance with the German Civil Code?

There are no express formal requirements for the conclusion of a construction contract according to the German Civil Code. Thus, this can be made verbally or by conviction (conclusive action) in the case of offer and acceptance.

Exception: A notarial certification is required if the construction contract is accompanied by the purchase of a property (purchase contract) (Section 311 b (1) sentence 1 BGB).

What must be in the contract?

The content of the construction contract must define the specific construction work (from Section 650a BGB). In summary, this means: contracting parties, construction work, construction time, acceptance, remuneration, payment plan (installment payments), security deposit (secures execution of construction work plus claims for defects) and warranty.

In any case, the service must be written down in detail in the construction contract. The description of services specifies what the client can request from the contractor. In the context of public contracts, the VOB forms the basis for construction services (procurement and contract regulations for construction services, see below).

Deadlines for acceptance

The client is obliged to carry out the acceptance of the contractually completed work. Acceptance cannot be prevented by the customer due to insignificant defects (Section 640 (1) BGB).

A work is also deemed to have been accepted if the contractor has set the purchaser a reasonable deadline for acceptance after completion and the purchaser has not refused acceptance within this period, naming at least one defect (Section 640 (2) BGB). The examination phase for the acceptance of a work differs from case to case.

If the client prevents acceptance due to defects, he must, at the request of the contractor, attend a joint inspection of the work (Section 650g (1) BGB). If he refuses again, the contractor can also carry out the condition check on his own (Section 650g (2) BGB). To do this, he must provide the employer with a signed copy of his health check stating the date of preparation.

Remuneration for construction work

The remuneration is understood to be the remuneration for the construction work performed. While the employee undertakes to produce the work free of defects (Sections 631 and 633 BGB), the employer must guarantee the agreed remuneration (Section 632 BGB).

The contracting parties have the choice between a flat rate and a unit price. The flat rate includes all services specified at the time the contract was concluded - excluding additional or reduced services. The unit price relates to a completed unit of service. This is described in a specification of services customary in the construction industry. The service specification lists service descriptions, subdivided into partial services. In the case of partial services, the remuneration is generated from the total of the unit prices.

When is the remuneration due? If the client has successfully accepted the work and the contractor has issued the client with a verifiable final invoice (Section 650g (4) BGB).

Final invoice for the final payment

It is inevitable that a final invoice must be available for the final payment: In the course of the final invoice, a final settlement of a monetary claim is implemented. This settlement includes prepayments made and payments on account.

The final invoice is considered to be verifiable if, on the one hand, the services provided are clearly presented to the client and, on the other hand, the client has not objected to their verifiability during the following 30 days after receipt of the final invoice (Section 650g (4) BGB).

As soon as the client has accepted the work and the final invoice is verifiable, no advance payment can be made retrospectively.

Termination of a construction contract

The termination of a construction contract according to the BGB must be carried out in writing (Section 650h BGB).

What to do in case of construction defects?

In principle, contractors are obliged to present their customer with a flawless work. However, if the client does discover construction defects in the work, they can claim the statutory warranty rights after acceptance within the limitation period (Section 634a BGB). The exception here are hidden defects that the contractor knowingly concealed during acceptance.

As the customer, what can you do if you discover defects after acceptance? Refuse to pay a reasonable part of the remuneration (right of retention), namely in double the amount of the costs that you need to remove the defect (Section 641 (3) BGB). Furthermore, clients have the following rights:

  • § 635 BGB: The employer may request supplementary performance. The employee is obliged to bear the costs necessary for this, especially costs for transport or material.
  • § 637 BGB: If the employee has not removed the defects within the period for supplementary performance, the client is entitled to correct the defect himself. Alternatively, he can hire another entrepreneur and demand compensation for the unavoidable services.
  • Sections 636, 323 and 326 (5) BGB: Under certain conditions, the client can withdraw from the contract. Alternatively, he can reduce the remuneration (§ 638 BGB).
  • Sections 636, 280, 281, 283, 311a BGB: Under certain conditions, the client can claim damages or compensation for unsuccessful services (§ 284 BGB).

VOB contract: The construction contract according to VOB

The procurement and contract regulations for construction works (VOB) is a set of clauses, divided into three sections. It was published on behalf of the German Procurement and Contract Committee for Construction Services (DVA) and is mandatory for construction contracts from the public sector in Germany.

The VOB is neither a law nor a regulation: The work is “only” a contractual condition and therefore to be used like a general business condition according to the BGB (§ 305). In other words, the VOB only becomes part of the construction contract if both parties explicitly stipulate this. For this reason, one often reads the following paragraph in construction contracts: “The VOB applies in the version that is valid at the time the contract is signed.” Most of the time, the VOB is noted under the heading “Contract components”.

The aim of the VOB is to ensure transparency, equal treatment and fair competition among providers. Corruption and nepotism should be avoided.

VOB / A:General provisions for the award of construction works

VOB / A relates to the award of construction contracts by the public sector and sector clients (public clients, natural or legal persons under private law who work, for example, in the field of energy supply and transport). The VOB / A are published as a DIN standard in 1960 and are divided into three sections:

  • National procurement procedures
  • EU tenders
  • Procedures in the field of sector contracting authorities for which different procedural rules apply

The VOB / A regulates the potential types of award and the respective processes for these areas. The set of clauses shows instructions on how to award a construction work, i.e.: What must be included in a tender and how?

Parts B and C are interesting for private house builders, as they are used in practice by many construction companies and clients as the basis for their contracts. They are the general terms and conditions of a construction contract.

VOB / B:General contractual conditions for the execution of construction works

VOB / B deals in 18 paragraphs with general contractual conditions for private building law, because the law on contracts for work and services in the BGB does not sufficiently take into account the complex characteristics of the private building trade. The regulations of the BGB do not always offer solutions for the problems that arise in everyday life. For this reason, the VOB / B contains provisions that on the one hand expand the legal rules, on the other hand also change and limit them.

The VOB / B were published as a DIN standard in 1961. The content of the VOB / B is the execution of the construction work, including the scope, remuneration, deadlines, acceptance, billing procedures and future warranty. If the contracting parties have adopted the VOB / B, the VOB / C is automatically also the content of the contract, because Part C explains more precise specifications for execution and billing.

VOB / C: General technical contract conditions for construction work

VOB / C is a collection of general technical contract conditions (ATV), also published as 65 DIN standards: In addition to DIN 18299 for general regulations for construction work of all kinds, there are many special rules for individual trades: DIN-18300 describes, for example, earthworks, DIN 18459 the demolition and dismantling work. These contractual conditions primarily concern technical regulations as to how the services of a trade have to look like. You will also find rules on how to bill services.

Consumer construction contract

What is a consumer construction contract?

In turn, a consumer building contract exists if the contractor is obliged by a private client to build a new building or to carry out major renovations of an existing building (Section 650i BGB). The consumer construction contract, which must be available in writing, was introduced as part of the reorganization of construction contract law in 2018. It has significantly strengthened the position of private home builders and improved consumer protection.

A meaningful building description is mandatory

Since then, private builders have been entitled to a detailed building description from the contractor before the contract is concluded. In it, construction companies must clearly describe the main properties of the property (concrete description of services): for example, the building construction, sound insulation, interior fittings and building technology. Plans with precise room and area information are also required. In the future, ambiguities in the building description will be at the expense of the company (Section 650k (2) BGB). But that is often still a problem in practice: "Many new building specifications do not yet comply with current building law," complains Holger Freitag, lawyer of trust at the Association of Private Builders. For example, design descriptions often remain so vague that in the end the customer does not know what exactly they are getting for their money. “Builders shouldn't blindly rely on the new law, but have the contract checked by an expert,” advises Freitag. Consumers now have a little more time for this: after signing a construction contract, they can withdraw it within two weeks - without giving a reason.

The completion of the construction work must be determined

In addition, there is an end to the construction company dodging: construction companies will have to make a binding statement on completion in the future. If an exact time for completion of the work cannot be specified when the contract is concluded, the duration of the construction work must be stated. If there is no information in the consumer building contract, the information given in the pre-contractual specification in the building description will be included in the contract at the time of completion of the work or for the duration of the construction work (Section 650k (3) BGB). If there are delays, builders can more easily assert claims for damages.

By the way, builders have a right to important documents: documents that the builder needs for the official acceptance of the building or for submission to an authority or his bank, for example to apply for a promotional loan, must be handed over by the construction company before construction begins. This also enables the customer to better check the construction project with the help of an appraiser.

Pay only according to plan

In addition to the existing claim to security of contract fulfillment (five percent of the total costs), private builders now receive an additional security: The contractor may only issue partial invoices for a total of 90 percent of the total remuneration (Section 650m Paragraph 1 BGB). However, the latter does not apply to the developer contract.

Revoke the consumer building contract

Since 2018, customers have been able to revoke a consumer construction contract that has not been notarized by the notary within a period of 14 days after signing the contract. This means that private builders are much better protected. If the building contractor forgets the cancellation policy or makes mistakes, the cancellation period does not end until one year and 14 days after the conclusion of the contract. If you want to withdraw from the construction contract, you should do so quickly, as this will invalidate all warranty claims. Important: The right of withdrawal only applies to private builders and not to property developer contracts that are notarized.