24 January 2024
A building contract exists when one party, the contractor, undertakes to the other party, the client, to deliver work for payment of a sum of money.
In that case, the statutory regulation on contracting work applies.[1] The delivery of work may include the construction, reconstruction or painting of a house or business premises. Repair work or demolition work is also classified as contracting work in case law.[2] This article discusses some points of interest for both the contractor and the client.
The first important choice to be made is whether to opt for a cost-plus contract or a fixed contract price. Under a cost-plus contract, the contractor receives a fee for the actual implementation costs incurred (such as for materials and labour), plus a mark-up for profit and general costs. Typically, a mark-up of around 10% is applied. As a general rule, a cost-plus contract is chosen if it is impossible to properly estimate and budget the work prior to the start due to lack of time or the nature of the work. When this is possible, the alternative is often chosen: a fixed contract price.
The main difference between these two options is the financial risk allocation. In the case of a cost-plus contract, the risk lies mainly with the client. This is because the contractor is reimbursed for the actual costs incurred, plus a mark-up. The contractor must give a guide price, however, which in principle may not be exceeded by more than 10%. If no guide price is provided, the client is liable to pay a ‘reasonable price’. What a reasonable price is is open to discussion.
In the case of a fixed contract price, most of the risk lies with the contractor. This is because the contractor has to deliver the work for a pre-agreed price and has to accurately budget this amount.
It frequently happens that the scope of the assignment changes during the work. If there is additional work, it is qualified as additional work and the contractor is entitled to a higher contract price. The contractor must then warn the client of the price increase in good time so that the client can make an informed decision. Less work actually reduces the total contract price, because certain work does not have to be performed or certain materials do not have to be delivered. It is advisable to put such agreements in writing.
Defects found prior to delivery must be repaired by the contractor within a reasonable time. In principle, however, this does not apply to defects found after delivery. Delivery is therefore an important moment. Indeed, from the moment of delivery, the risk passes from the contractor to the client.
In order to speak of delivery, it is not enough that the contractor has completed their work. The client must also accept the work. This can be done explicitly, but also implicitly, for example by putting the work into use. Therefore, if the client believes that the work or part of the work has not been performed properly, it must state this prior to putting the work into use. If the client does not do so, the work is tacitly accepted and, in principle, the contractor can no longer be held liable for defects.
Prevention is better than cure. GMW advocaten is happy to help you draft or review the building contract and general terms and conditions. This ensures that clear agreements are made on, for example, the scope of work, the contract price, planning, responsibility for permits, payment terms, guarantees, repair terms and insurance, etc. In the unlikely event that you do run into problems, for example because the client refuses to pay the contract price or because there are defects, GMW advocaten will be happy to assist you. Please feel free to contact me or one of the other specialists at GMW advocaten to discuss your options regarding contracting work.
[1] Book 7, Title 12 of the Dutch Civil Code (Burgerlijk Wetboek).
[2] See: Leeuwarden Court of Appeal 24 January 2012, ECLI:NL:GHLEE:2012:BV6686, and
Den Bosch Court of Appeal 8 December 2015, ECLI:NL:GHSHE:2015:5129.
