Reform of Construction Contract Law Planned in Germany

By Christoph Mank, K&L Gates, Berlin

Introduction
Despite the huge economic significance of the construction industry to Germany, there is, as yet, no codified construction contract law. Usually, general services contract law according to the German Civil Code (Bürgerliches Gesetzbuch – BGB) is applied to contract types as varied as manual repair work and project developments involving millions of Euros. Traditionally, general contractual terms known as “VOB/B” (Verdingungsordnung für Bauleistungen), which have existed for almost 100 years, are of considerable practical importance to the German construction industry. They are flanked by increasingly extensive case law regarding individual issues of construction law, requiring expert knowledge to comprehend the legal framework for construction contracts. A codification of construction contract law has been called for in Germany for a long time. The most recent comprehensive reworking of the law of obligations, which came into effect in 2002, also saw a revision of services contract law, but without consideration of the specific characteristics of construction contracts. The pressure exerted by practitioners on the legislature has increased due to recommendations issued by the building commission, “Deutscher Baugerichtstag”, that has been convening biannually since 2006. In September of this year, a draft bill was presented by the Federal Ministry of Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) for the reform of the construction contract law. There will be considerable need for further discussion regarding the details in the consultations currently taking place among interested groups. However, we would like to take this opportunity to give an overview of the planned changes to the law.

Overview
The justification for the draft reveals that there are two fundamental factors driving the draft bill. On the one hand, there is the lack of consumer protection rules whatsoever in services contract law, unlike in other fields of law significant to consumers. On the other hand, a recent ruling by the European Court of Justice [cf. judgment of 16 June 2011 – C 6509 and C 87/09] has led the German legislature to believe that changes to the liability for defects under sales law are required in order to allow service providers who purchased and installed defective building materials a more comprehensive recourse to suppliers than hitherto possible under German law. Against this background, the legislature has decided not only to modify the liability for defects under sales law and special provisions for the so-called consumer construction contract (Verbraucherbauvertrag), but also to include separate clauses and subclauses for construction contract, the agreements with architects and engineers, as well as construction contracts in the services contract law of the German Civil Code.

Key modifications

• The clause concerning the construction contract will include an explicit instruction right (Anordnungsrecht) for the purchaser (Besteller) that can be enforced under facilitated conditions by means of a temporary injunction in cases where a dispute arises after construction has begun.
• The purchaser’s instruction right corresponds to an adjustment of the contractor’s reimbursement that shall be primarily determined on the basis of the costs that are actually necessary, with the contractor being able to fall back on a previously specified calculation, though it would not be compelled to do so.
• The termination of a construction contract must be made in writing.
• The safety of the construction workers according to § 648a of the German Civil Code shall be limited to 20% of the agreed remuneration in the case of partial payments agreed in line with the usual practice.
• The obligations normally contained in such a contract will now be legally determined in the subtitle concerning the architects’ and engineers’ agreement. In addition to this, the draft bill introduces a project concretisation phase (Projektkonkretisierungsphase), during which the architect will initially owe the services necessary for the achievement of the planning and monitoring objectives; a contract for the complete architecture (Vollarchitektur) is not possible until these objectives have been achieved.
• Furthermore, proposed legislation provides that, if the architect is jointly and severally liable towards the contractor for defects, the architect’s liability does not take effect until a deadline for rectification issued by the purchaser to the contractor has passed in vain.
• In addition to this, a clause concerning the consumer construction contract will be introduced that specifically lays down comprehensive consumer information obligations, such as a building description with defined minimum content, but also a legal foundation for a security retention amount (Sicherheitseinbehalt).

Due to the extensive proposals for reform, it is to be expected that the discussion of the draft bill with the associations concerned will take some time; it cannot, therefore, be said with certainty when the Ministry of Justice’s draft bill will come into effect, or what the final version will look like.