The implementation of works resulting from the contract of works concluded between the parties does not happen properly, e.g. works are not properly performed. Given that the construction investment requires the collection of adequate capital resources and specific organisational measures, it is important that the potential claims of the investor are adequately secured. In the article we present some of the ways in which the claim is secured on the market.
Securities to the investor
The most common security on the domestic market for the investor is a bank guarantee, guarantee deposit and replacement.
- Bank guarantee — this collateral consists of a commitment by the bank to pay the monetary amount to the investor in the event of specific circumstances on the part of the contractor. We can distinguish the unconditional and conditional bank guarantee. The unconditional bank guarantee will be paid by the bank at the first request of the investor without the need to examine the facts of the case by an independent expert and the payment of the conditional bank guarantee may only take place after the contractor has infringed the contractual provisions.
The parties may specify in the contract a guarantee of reimbursement of the advance, good performance and a guarantee of correction of defects and defects. Safeguarding the claim by establishing a bank guarantee is the most common and safest way to secure the claim. Often, the contractor's presentation of a bank guarantee is a requirement for a contract to be concluded. A less commonly used method of collateral is a guarantee provided by an insurance undertaking which then acts as a guarantor.
- Guarantee deposit – this security is that the investor retains part of the contractor's remuneration until the final receipt of the works, with the possibility of releasing the retained remuneration after the partial receipt of the works. The works contract should contain a provision indicating whether a specified % of the contractor's remuneration or a specified monetary amount has been retained.
The parties to the agreement should include in the agreement a provision on the amount retained, whether a percentage or a quota. In practice, the percentage is most often indicated, indicating the amount of detention per 15%.
The amount of retention may be ‘automatically’ released after the part of the work has been taken and the minutes have been drawn up or the final work has been received and the relevant document has been written. It should be borne in mind that contractual provisions may require the contractor to request the release of the sums retained.
In order to avoid disputes, all elements of the guarantee deposit should be specified in the contract.
- Substitutive execution – this collateral is to enable the investor to order incorrectly completed construction work or works, to a third party. The contract for works should contain a provision for replacement, in particular with a reference to the circumstances when the abovementioned institution can be applied.
The parties to the contract may include in the content of the works contract provisions on replacements and conditions which must be fulfilled in order for the institutions to apply. Where this provision is not included in the contract, systemic solutions may be applied[1], may, however, involve the need to enter into several years of litigation against the contractor.
Summary
The best form of securing the investment is to secure the investor’s claim and the contractor’s claim. The article describes selected issues related to the possibility of securing the investor’s claim. These issues only give an overview of the issue of securing the claim resulting from the construction contract.
Each case requires individual analysis, therefore, our law firm will assist you in both preparing an appropriate construction contract containing contractual provisions that best safeguard the interests of the represented party and will provide professional support at every stage of the investment.
We invite you to read also "Wages for construction works – selected issues"
[1] Article 636(1) a civil code, Article 480 Civil code
Written by Michał Pankiewicz
The author is a graduate of KUL in the direction of Law. From 2022 related to Russell Bedford. His interests include civil law, in particular commercial company law and compensation law. Privately passionate about geopolitics.