Russian Federation: Russian Construction Contracts: Overview

Last Updated: 6 February 2015
Article by Valentin Petrov and Petr Shevtsov

Under a construction contract, the contractor undertakes to construct a building or a structure or perform other constructions works in accordance with the instructions of the customer, and the customer undertakes to create necessary conditions for the performance of the works (i.e. to provide the land plot, to ensure transportation access to the site, to ensure electric power and water supply, etc.), accept the result and pay the price. The parties have sufficient flexibility in determining which party is responsible for obtaining construction insurance (if any), which party is responsible for the provision of construction materials and equipment, the payment schedule and the contractor's liability for meeting the agreed time schedule, the scope and quality of works and the scope and term of the warranty (if any).

The law expressly provides that the contractor is obligated to comply with all applicable construction safety and environmental protection obligations and is liable for violations of environmental and construction safety regulations (which would include liability vis-ŕ-vis third parties for damage caused by such violations). The contractor cannot use construction materials and equipment provided by the customer, or follow the customer's instructions, if that would lead to a violation of environmental protection or construction safety rules that are binding for the parties. On a related point, please note that construction activity constitutes a "hazardous activity" and thus the contactor is liable for injuries and damage caused by such activity, regardless of whether it is at fault, unless it can prove that the damage was caused as a result of force majeure or the injured party's intent (Article 1079 of the Civil Code).

The contractor is required to carry out the construction works in accordance with the "technical documentation" (setting out the scope and nature of works, as well as other terms and conditions which the works must conform to) and the cost schedule. The contract must specify which party is responsible for providing the technical documentation and when. The customer may make amendments to the technical documentation, provided that the cost of resulting additional works will not exceed ten percent of the total contract price and that the nature of the construction works will not change. If the amendments go beyond what is described in the previous sentence, the parties must agree upon a new cost schedule. The contractor is entitled to require an increase of the scheduled price if the costs increase by more than ten percent for reasons beyond the contractor's control. The contractor can claim compensation of reasonable costs incurred in verifying and curing defects in the technical documentation.

If in the course of the construction, the contractor finds out that there are additional works not included in the technical documentation that need to be done, resulting in an increase of scheduled costs, it must inform the customer thereof. A contractor who fails to comply with this requirement to inform the customer and suspend the construction works, loses the right to require that the customer pays for such additional works and compensates the contractor for damages, unless it can prove that the interruption of construction works would cause physical damage to, or loss of, the constructed structure. If the customer fails to respond within 10 days (unless another time period is provided for by law or by contract), the contractor must suspend the works, in which case the customer will be liable for damages caused by the delay, unless it can prove that such additional works were unnecessary.

The customer has the right to oversee the progress and quality of the construction works (including compliance with the time schedule, the quality of materials provided by the contractor and the use of materials provided by the customer) and intervene if it becomes aware of any defects or violations of contract terms that may impair the quality of works. If the customer fails to notify the contractor of such defects and violations, it will be unable to refer to them in subsequent disputes. The contractor who performs the works improperly cannot argue that the customer has failed to exercise control and oversight over their performance, except for cases where the customer is legally obligated to exercise such oversight. The customer may delegate its control and oversight rights to a separately engaged engineer or an engineer company, in which case the rights of such engineer would need to be defined in the construction contract.

Parties to a construction contract are obligated to reasonably cooperate with each other. A party which failed to cooperate in overcoming "obstacles" hindering proper performance of the construction contract that may arise in the course of construction and take all reasonable steps within its control to remove such obstacles, loses the right to claim damages caused by such circumstances. The contract may provide for an obligation of each party to compensate the other party for expenses incurred in connection with the above obligation.

If the construction is suspended for reasons beyond the parties' control, the customer is required to compensate the contractor for the full amount of works performed prior to the moment of such suspension and for the expenses associated with the suspension of the construction reduced by the amount of profits that the contractor received or could have received as a result of the suspension of the works. The relevant Article 752 of the Civil Code does not offer any guidance as to how the amount of such actual or possible profits could be calculated.

Consistent with the general approach applicable to contractor's contracts, the customer is obligated to start the procedure of formal acceptance of the end result (or an intermediate result, if this is provided for in the contract) of the construction works upon receiving a completion notice from the contractor. Such formal acceptance is documented in an acceptance act executed by both parties. A customer, who has formally accepted an intermediate result, bears the risk of accidental loss or damage thereof for reasons other than the contractor's fault. The law or the contract may provide for a preliminary trial preceding formal acceptance, in which case successful trial is a precondition to acceptance.

The contractor is liable for deviations from requirements of the project technical documentation and mandatory construction rules and regulations (unless it can prove that such deviations are insignificant and do not affect the quality of the structure), as well as for failure to reach the performance parameters (such as production capacity) set out in the technical documentation. Unless the construction contract provides otherwise, the contractor guarantees the performance characteristics of the structure as set out in the technical documentation during the guarantee period and is liable for any defects discovered during the guarantee period, unless it can prove that the defects were caused by normal wear and tear or by improper operation or maintenance of the structure by the customer or the customer's contractors. If a guarantee period is established by the law, the parties may increase such period, but not decrease it. The time required for curing defects shall not be counted towards the duration of the guarantee period. The customer should inform the contractor of any defects found during the guarantee period within a reasonable period after their discovery.

Under a construction contract, the customer can make claims related to the quality of performed works if the defects are found within a reasonable period of time, but in no event later than five years following the date of the transfer of the structure to the customer, unless a different time period is provided for by law, by contract or market practice. If the warranty period is less than two years and defects are found after the expiration of the warranty period, but within five years following the date of the transfer of the work results to the customer, the contractor shall be liable if the customer can prove that the defects had occurred prior to such transfer or due to reasons that had occurred prior to such transfer. This is consistent with the general rule applicable to contractor's contracts (Article 724 of the Civil Code), except that a longer (5 year) term is established for construction contracts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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