Russian Federation: Russian Work Contracts

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

Contracts for the Performance of Design and Survey Works

These are contracts used in the context of developing construction documentation. Under a contract for the performance of design and survey works, the contractor undertakes to develop technical documentation and/or perform engineering survey works and the customer undertakes to accept and pay for the works. The contractor should work in accordance with a project outline and other data necessary for the creation of the technical documentation. Such an outline may be provided by the customer or prepared by the contractor at the instruction of the customer, in which case it becomes binding for the parties upon approval by the customer. Any deviations from the project outline are only allowed with the customer's permission.

The contractor is obligated to agree the completed technical documentation with the customer and, if necessary, with the relevant authorities. Under a contract for the performance of design and survey works, the contractor guarantees to the customer that no third-party has the right to prevent or limit the performance of the works to be performed based on the technical documentation developed by the contractor. The third-party "rights" referred to in this provision are commonly understood to mean intellectual property rights, such as rights to inventions, etc. The implication is that the contractor will be liable for damages caused to the customer, regardless of whether the contractor was at fault and whether it knew or should have known about any such third party rights.

The contractor is liable for improperly drawn technical documentation or improperly performed survey works, including defects that may be discovered at the construction stage, as well as the building or structure operation stage. If defects are found in the technical documentation or survey data, the contractor, upon the customer's demand, must re-do the technical documentation and carry out any additional survey works that may be necessary at its own expense, as well as pay damages to the customer, unless the law or the contract provides otherwise. Unless otherwise provided by the contract, the customer is required to provide assistance to the contractor pursuant to the terms of the contract, as well as to compensate the contractor for any additional expenses associated with the performance of the works that that the contractor have incurred due to circumstances beyond his control.

Contracts for the Performance of Works for State Needs

Paragraph 5 of Chapter 37 of the Civil Code specifically deals with contracts for the performance of construction, design or survey works for state and municipal construction or maintenance needs (i.e. contracts with government bodies, governmental enterprises or commercial enterprises owned by the government). Please note that certain rules related to such contracts are also found in Federal Law No. 44-FZ, dated April 5, 2013 (as amended) "On the Contracts in the Area of Supplies of Goods, Performance of Works or Rendering of Services to Procure State and Municipal Needs", which, however, primarily deals with procedural issues in connection with the selection of contractors.

When relevant state authorities decrease the amount of financing budgeted for the payment for given works, the parties must amend the time schedule and, if necessary, other terms of the contract accordingly and the customer is obligated to compensate the contractor for damages caused by the change of the time schedule. In the absence of budget funds, receiving such damages amounts might be problematic in practice. Any other unilateral or jointly agreed amendments of the contract terms (i.e. amendments unrelated to the decrease in financing amounts) are only possible in cases, provided for by law.

In case of late performance (i.e. performance past the due date) the contractor will accrue an additional charge (penalty/fine) equal to a daily amount of at least 1/300 X the Central Bank's refinancing rate (currently at 10.5%) as of the date of payment of the penalty for each day of delay, unless the contractor can prove that the delay was caused by force majeure or by the consumer's fault. A similar penalty is established for cases of late payment by the consumer.

Contracts for the Performance of Scientific Research, Development and Technological Works

The Civil Code distinguishes between contractor's contracts (where it is possible to clearly define the agreed upon end-product in the contract) and contracts "for the performance of scientific research, development and technological works" (further referred to here as an "R&D contract"). This type of contracts is meant to be used in the context of development of new technologies and new products and may cover either the full research cycle (up to manufacturing a sample of a new product) or different stages thereof.

Under an R&D contract, the contractor undertakes to carry out scientific research, develop a sample of a new product (along with necessary design documentation) or develop a new technology, in each case in accordance with the customer's instructions, and the customer is obligated to accept the agreed result and pay for it. Provisions of Chapter 38 of the Civil Code that govern this type of contracts take into account the creative nature of research and development processes and the possibility of obtaining positive or negative results, as well as no results at all). Unless otherwise provided for by law or by contract, the risk of accidental impossibility of the performance of works under an R&D contract is borne by customer and not the contractor. If it turns out as the works under the contract progress that the desired result is impossible to achieve for reasons beyond the contractor's control, the customer is required to compensate the contractor for the value of works performed up to that point, corresponding to (but not exceeding) the relevant portion of the total contract price. If it turns out that the continuation of contracted works become impossible or impractical for reasons other than the contractor's fault, the customer is obligated to compensate the expenses borne by the contractor. The contractor is only liable for defects that occurred through its fault. Pursuant to Article 777, the contractor's liability for damages caused by it to the customer is limited to the contractual cost of defective works performed under the contract, if the contract provides that damages under the contract are limited to the cost of works performed thereunder. The contractor is only liable for the customer's lost profit in cases provided for in the contract.

Unless otherwise agreed to by the client, the contractor must carry out the scientific research work under an R&D contract personally. By contrast, the contractor may use subcontractors for "development and technological works", unless the contract says otherwise. Because R&D contracts may involve intellectual property issues, the Civil Code expressly requires that their terms comply with intellectual property laws. The parties may contractually determine the scope of rights that the contractor and the client would have for the use of scientific and technical results obtained under the contract. Unless otherwise provided in the agreement, the client has the right to use the results transferred to it by the contractor, including rights capable of legal protection, while the contractor retains the right to use such results for its own needs.

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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