Construction Comparative Guide -

1 Legal framework

1.1 Which legislative and regulatory provisions govern construction projects in your jurisdiction?

In Denmark, the statutory requirements relating to construction are mainly set out in the Building Act, including the associated ministerial orders. The on-site work environment is likewise governed by legislation, including the Working Environment Act.

There are no laws specifically governing the contractual relationship between the parties involved in a construction project (notably the employer and the contractor). Instead, most larger construction projects are based on standardised contractual terms which have the status of agreed documents. See further question 6.1.

Finally, the Contracts Act – which regulates when and how a contract is considered binding and agreed, and contains certain principles on interpretation – is also relevant in assessing the contractual relationship between the parties.

1.2 What other legislative and regulatory provisions have relevance for construction projects in your jurisdiction?

The legislative and regulatory provisions which have relevance for construction projects are detailed in question 1.1.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The Ministry for the Interior and Housing and its associated agencies are responsible for enforcing the Building Act.

The Working Environment Authority is responsible for enforcing the Working Environment Act.

The authorities have the following powers, among others:

to oversee compliance with the rules;
to grant various permissions; and
to impose orders and bans.

1.4 What is the general approach in regulating the construction sector?

Most larger construction projects are based on standard contracts. These standard contracts have been prepared by a committee appointed by the minister for climate, energy and building, and are commonly referred to as the so-called ‘AB Standards'. These standards are described in question 6.1.

2 Procurement methods

2.1 What procurement methods are most commonly used in your jurisdiction? Do these vary depending on whether international parties are involved?

The largest projects in Denmark – usually infrastructure related – are tendered by public employers. In such projects, international contractors are usually involved, due to their scale and complexity, as well as the size of the Danish market and actors.

Public procurement is carried out in accordance with EU rules on tendering of public projects once the project value exceeds certain thresholds. In Denmark, these rules have been implemented by law under the Public Procurement Act. This act allows for various procurement methods, including open procedures and limited procedures.

In open procedures, all economic operators may submit tenders in response to the contract notice.

In restricted procedures, all economic operators may request participation in response to a contract notice.

2.2 What are the advantages and disadvantages of these different methods?

Open procedures allow for the greatest competition, but also require the employer to spend significant time and resources on reviewing (potentially many) tenders.

Restricted procedures allow the employer to be more selective in identifying relevant tenderers through pre-qualification; but compared to open procedures, restricted procedures may lead to an extension of the procurement period.

2.3 What other factors may influence the choice of procurement method?

Certain procurement methods are mainly applicable in connection with particularly complex contracts or specific types of projects that require dialogue between the employer and the tenderers.

3 Project structures

3.1 How are construction projects typically structured in your jurisdiction? Does this vary depending on whether international parties are involved?

The structure of a construction project varies and depends on the parties' agreement. The two most common structures in Denmark, further described in this question, are also reflected in the AB Standards (see question 6.1).

The employer may choose to contract with only one party on a turnkey basis, which generally entails that the contractor carries out both the design (eg, drawings, descriptions) and the construction works. In such cases, the turnkey contractor will be fully responsible for both the construction work and the design. The contractor will usually enter into a contract with a consultant/designer to carry out the design and subcontract some or all of the execution of the works to subcontractors. However, the turnkey contractor remains fully responsible for the work in the contractual relationship between the turnkey contractor and the employer.

The other typical project structure in Denmark is where the employer enters into contracts with each of the contractors, consultants and so on. These parties then each carry out their individual part of either the design or the construction work. There are, of course, many variations of such structures.

There are no requirements as to how the employer chooses its contractual setup. This is also why these structures may vary and hybrids of these also exist.

3.2 What are the advantages and disadvantages of these different structures?

With reference to the first structure – the turnkey contract – there are some disadvantages for the turnkey contractor. For example, the turnkey contractor:

is responsible for coordinating all work between the subcontractors, architects and so on; and
is responsible – towards the employer – for the subcontractors' and consultants' potential delays and defects.

Accordingly, turnkey contracts include less project management from the employer's point of view; and contractually speaking, the employer can generally restrict the number of parties it is directly involved with by handling all issues directly with the turnkey contractor (and not the consultants, subcontractors and so on). The turnkey contractor's ‘added' responsibility will be reflected in the agreed contract price.

With the second structure, the employer bears the risk relating to any inconsistency between the contractor's contracts, the coordination between the contractors, overlap between the contractor's contracts and so on. In other words, the employer is responsible for the coordination of the works. Compared to turnkey contracts, the employer must deal with each of the actors contractually on an individual basis and regulate the interplay between their work.

These differences in the division of responsibilities and risks are worth considering when choosing the structure for the construction project.

3.3 What other factors may influence the choice of project structure?

As mentioned in question 3.2, the responsibility and risk for coordinating the work are key factors to consider, and the contract price will reflect the risks and obligations assumed.

That said, the nature of the construction projects often dictates whether the project should be executed via a turnkey contract or several independent contracts.

4 Financing

4.1 How are construction projects typically financed in your jurisdiction? Does this vary depending on whether international parties are involved?

Many large-scale projects are public, with state-funded loans being the primary source of financing. In such projects, a publicly owned project company is usually founded to contractually act as the employer and to facilitate the day-to-day management of the employer's obligations.

Other projects are financed through employer capital as well as private loans. Pension funds often act as the employer – potentially together with other actors – and in a sense the finance comes from Danish citizens in those cases.

The involvement of international parties typically does not change the way in which a project is financed.

4.2 What are the advantages and disadvantages of these different structures?

One advantage for a contractor participating in a state-funded project is that the Danish state is a very solid debtor. On the other hand, in certain situations it may be more difficult to reach commercial agreement, since public authorities and publicly owned companies do not have the same liberty of action as private actors.

4.3 What other factors may influence the choice of financing structure?

N/A.

4.4 What types of security and other protections are available to lenders to safeguard their position?

The broadest form of security is a company charge, whereby security is essentially provided over all assets that the company owns, now and in the future. Bank guarantees are also customarily provided by the contractor to the employer as security for due performance of the contractor's obligations under the contract.

A close eye should also be kept on payments in relation to the performed work, to ensure that there are no major discrepancies between what has been paid for and what has actually been performed. This may be achieved through weekly or monthly status meetings and compliance with documentation requirements before being entitled to payment.

4.5 What law typically governs project finance agreements in your jurisdiction? Do any specific requirements apply in this regard?

State-funded loans will typically be provided within the budgetary framework approved in the relevant budgetary committee(s); whereas the terms and conditions of private-based loans and securities are customarily based on agreements between the parties.

5 Bribery and corruption

5.1 What measures are in place to combat bribery and corruption in your jurisdiction?

Denmark is one of the countries in the world that are least affected by corruption and is continuously ranked near the top of various anti-corruption indexes. Consequently, trust in public authorities is generally high.

Therefore, there are typically no specific measures in place to combat bribery and corruption in contractual relationships between the employer, the contractor and so on.

Actions that constitute corruption or bribery are illegal under the Criminal Code and violations carry heavy sentences from a Danish perspective.

6 Standard form contracts

6.1 Which standard form contracts are typically used for construction projects in your jurisdiction? Does this vary depending on whether international parties are involved?

The standard contracts used for construction projects in Denmark are agreed documents. As mentioned in question 1.4, the standard contracts have been prepared by a committee appointed by the minister for climate, energy and building, and including representatives from various interest groups representing employers, contractors and so on. The committee has formulated three standard contracts (the ‘AB Standards'):

The General Conditions for Building and Construction Works and Supplies (AB 18) are mainly used where the employer is responsible for the design and the contractor is responsible for the performance of the building and construction work.
The General Conditions for Design and Build Contracts (ABT 18) are used in turnkey contracts where the contractor is responsible for both the design and the building and construction work (turnkey contracts).
The General Conditions for Consultancy Services for Building and Construction Works (ABR 18) are used in the relationship between the employer/contractor and the consultant.

In general, construction contracts in Denmark are rarely based on model contracts such as those of the International Federation of Consulting Engineers (FIDIC), NEC3 or the like. Instead, the AB Standards are the predominant basis for drafting construction contracts. However, standard contracts based on FIDIC models are sometimes used when international parties are involved in larger construction projects in Denmark.

The AB Standards are to some extent comparable to the standard contracts used in the rest of Scandinavia.

6.2 What are the advantages and disadvantages of using the different standard forms?

The primary advantages of using the AB Standards are that they are very well known in Denmark and the case law is well developed. The standards have also been drafted with the aim of balancing the interests of employers and contractors alike. Further, large parts of the AB Standards are a codification of what would otherwise apply under Danish law.

From the perspective of an international party, the primary disadvantage of using the AB Standards is that the provisions in the contracts should not be read too narrowly, as many provisions do not necessarily entail the effects that one would presume when reading the provisions at a face value or from a strict literal interpretation.

For example, the standards specify certain deadlines for a contractor to claim additional costs towards the employer. However, if the contractor fails to abide by the deadlines, this does not automatically mean that the contractor is precluded from claiming the costs, as this will ultimately be decided by an arbitral tribunal (by default, the AB Standards foresee arbitration as the final instrument of dispute resolution between the parties).

As such, Danish construction law is characterised by a certain degree of pragmatism. Procedural requirements in contracts are often viewed as having a probative value. For instance, even where contracts prescribe a specific deadline for notification of delay, non-adherence with such deadlines does not necessarily prevent a contractor from being entitled to an extension of time.

6.3 What other factors may influence the decision to use standard form contracts and the choice of standard form?

The AB Standards are customarily used in construction projects in Denmark.

International parties may find that Danish actors (eg, employers, contractors) will consider it a prerequisite for entering into a contract that the relevant AB Standard be included as part of the legal framework governing the contractual relationship.

As a result, international parties should consider seeking Danish legal advice to avoid any potential misinterpretation(s) of the AB Standards (see question 6.2).

6.4 Where standard form contracts are used, do parties typically modify their provisions?

The AB Standards set out the parties' contractual responsibilities, rights and obligations. However, they apply only if the parties have agreed thereto.

Nothing prevents the parties from modifying or supplementing the provisions in the AB Standards and agreeing on other provisions. In larger construction projects, the parties often modify the provisions in the AB Standards (often referred to as ‘special conditions').

However, the AB Standards to some extent codify general Danish legal principles and, as such, any modifications to the AB Standards will be interpreted in accordance with such principles.

7 Contractual issues

7.1 Is a choice of foreign law or jurisdiction valid and enforceable? In the case of a choice of foreign law of jurisdiction, will any provisions of local law have mandatory application?

A choice of foreign law or jurisdiction is valid and enforceable. However, if the works are carried out in Denmark, certain mandatory laws will apply, including the minimum requirements contained in the Building Act.

7.2 What formal, substantive and procedural requirements typically apply to construction contracts in your jurisdiction? Are there any mandatory terms? What terms are typically included? Are any terms prohibited?

In relation to the requirements to enter into a legally binding construction contract, an agreement is legally binding once an offer has been made and has been accepted (see the Contracts Act). In general, there are no formal requirements. For instance, an agreement need not be in writing or signed for it to be valid.

The AB Standards do state that the contract should be concluded in writing; but this is not a requirement for the contract to be valid.

In general, there are no mandatory or prohibited terms, provided that the applicable legislation is adhered to. Danish courts and arbitral tribunals can, however, set aside the construction contract or specific clauses therein if the terms:

are deemed at variance with mandatory requirements;
are considered (particularly) unreasonable; or
are found at variance with fair and just conduct.

7.3 How is risk typically allocated between the parties? What steps can the parties take to mitigate these risks?

Please see questions 3.1 and 3.2.

7.4 How can liability be excluded or restricted in your jurisdiction? Are parties able to cap their liability?

By agreement between the parties to the construction contract, liability may – as a general rule – be limited. In a Danish construction contract, this will normally be expressed as an agreement concerning capping a party's liability.

However, an exclusion of liability may not apply if the party in question has materially breached its core obligations or has acted with gross negligence or wilful misconduct.

In relation to the liability period, the absolute deadline to present claims regarding defects is five years after handover of the works if the AB Standards have been agreed between the parties. After this deadline, the contractor's liability for defects generally ceases.

Further, it follows from the Statute of Limitations Act that a claim becomes statute-barred three years after the claimant became or should have become aware of the circumstances giving rise to the claim. The act applies in parallel with the AB Standards. By mutual agreement or by taking legal action to pursue the claim, the limitation period may be suspended.

7.5 In the event of delay to the project, what consequences will this typically have for the parties?

In the event of delay in the project, the employer, the contractor or both may be entitled to an extension of time.

In accordance with the AB Standards, the employer will generally be entitled to an extension of time where the delay is a result of:

variations to the works ordered by the employer;
certain events that are without the fault and beyond the control of the employer or another contractor;
unusual precipitation, low temperatures, strong winds or other weather conditions that prevent or delay the works; or
public enforcement notices or prohibitions that are not due to circumstances of the employer or another contractor.

Similarly, the contractor will be entitled to an extension of time where the delay is a result of:

variations to the works ordered by the employer;
circumstances of the employer or delay on the part of another contractor;
certain events that are without the fault and beyond the control of the contractor;
unusual precipitation, low temperatures, strong winds or other weather conditions that prevent or delay the works; or
public enforcement notices or prohibitions which are not due to circumstances of the contractor.

If the contractor is not entitled to an extension of time, the delay is considered the responsibility of the contractor. In such case, the employer is entitled to claim its losses in relation to the delay towards the contractor. However, most construction contracts contain a provision on liquidated damages, often agreed as a daily penalty fixed as a pro mille of the contract sum. If liquidated damages have been agreed, the employer is not entitled to claim its losses covered, but may ‘only' claim liquidated damages.

7.6 Is the concept of force majeure recognised in your jurisdiction? If so, what are the typical implications for the parties?

The concept of force majeure is recognised in Denmark and has been incorporated into the AB Standards. Force majeure is incorporated both in relation to delays and in relation to the risk of damages to/loss of the works, though the categorisation of what is considered force majeure differs in the two contexts.

However, typical examples of force majeure include war, rebellion, acts of terrorism and natural disaster. Depending on the context, fire, strike, lockout and vandalism may also be considered force majeure.

As mentioned in question 7.5, both the employer and the contractor will be entitled to an extension of time in the event of circumstances for which the party cannot be blamed and which are outside the control of that party and cause delays.

7.7 What scope do the parties typically have to make material variations to the works?

Variations to the works can be ordered by the employer. The employer has a right to do so in accordance with the AB Standards. However, the employer's right is not unlimited. The employer only has a right to order variations where these variations are naturally linked to the services agreed upon.

As a balance to this, the contractor has the right to carry out the variations ordered by the employer and to be paid for the work, unless the employer can prove special reasons for having another contractor perform the work. As an example, one reason may be that the contractor does not have the necessary qualifications to perform the variation work. In other words, the employer cannot simply engage a new contractor if the variation work is linked naturally to the service agreed.

7.8 Are there any particular requirements for completion or taking-over in your jurisdiction?

In accordance with the AB Standards, the parties must conduct a pre-handover review prior to the actual handover of the works. The purpose of the pre-handover review is to align the parties' expectations and to facilitate a joint inspection for defects.

After the pre-handover and immediately before completion of the works, the contractor must notify the employer in writing about the date of completion (notice of completion). The employer then calls in the contractor for a handover meeting and the works are considered handed over to the employer after the handover meeting, unless material defects are identified during the meeting, including defects which prevent the works from being taken into use. If material defects exist, a new handover meeting must be held once the defects have been rectified by the contractor.

The employer prepares a handover protocol at the handover meeting in which defects and other matters identified are stated by the employer. The contractor's remarks are also stated in the handover protocol together with agreements concerning rectification of the identified defects.

7.9 What requirements and restrictions typically apply to the termination of the construction contract in your jurisdiction?

If AB 18 or ABT 18 (see question 6.2) is agreed between the employer and the contractor, both parties are entitled to terminate the contract in whole or in part with immediate effect when specific situations arise. The termination must be given in writing.

In general, it follows from Danish law that a party is entitled to terminate a contract if the opposing party has materially breached the contract. A material breach of contract may manifest itself in various ways. The AB Standards include some examples of situations where the employer is entitled to terminate the contract, such as the following:

The contractor causes material actionable delay in the execution of the works where such delay causes substantial inconvenience to the employer;
The contractor causes other material delay with regard to matters of decisive importance to the employer;
The works executed are of such quality that the employer has reason to believe that the contractor is unable to complete the works without material defects; or
The contractor otherwise commits a material breach with regard to matters of decisive importance to the employer.

Likewise, the AB Standards include examples of situations where the contractor is entitled to terminate the contract, such as the following:

There is a material delay as a result of circumstances of the employer or delay on the part of another contractor, where the employer does not make reasonable efforts to expedite the works to the fullest extent possible; or
The employer causes other material delay or commits material breach with regard to matters of decisive importance to the contractor.

Further, both parties are entitled to terminate the contract in the case of the other party's bankruptcy to the extent not precluded by the Bankruptcy Act.

7.10 How are delay or liquidated provisions dealt with in your jurisdictions?

The parties can freely agree on liquidated damages to apply in the event of a delay which does not entitle the contractor to an extension of time.

Most construction contracts contain a provision on liquidated damages, often agreed as a daily penalty fixed as a certain pro mille of the contract sum (see question 7.4).

For an employer to be entitled to claim liquidated damages:

the deadline and liquidated damages must be clearly specified in the contract;
the employer must, on an ongoing basis, record any non-compliance with the deadline as it may have been changed through an extension of time; and
the employer must, within a reasonable period of time after becoming aware that the deadline will be passed, state that liquidated damages will be applied and provide notification of the time from which such damages will be claimed.

If liquidated damages constitute an exorbitant amount compared to the contract sum, the Danish courts may adjust the agreed provision on liquidated damages.

8 Subcontractors and suppliers

8.1 Are there any particular issues which arise when dealing with subcontracts and/or subcontractors which are different from the issues discussed elsewhere?

In accordance with the AB Standards, a contractor may subcontract the execution of the construction work and design to a subcontractor to the extent that it is customary or natural for the work to be executed under a subcontract. Nonetheless, the parties can agree that all or some of the work must be executed by the contractor or by a specific or approved subcontractor with the effect that the employer's approval is required.

Contractually speaking, a contractor is considered an employer (in a construction law sense) towards its subcontractors. Therefore, the general obligations and rights of the subcontractors towards the contractor are comparable with the obligations and rights of the contractor towards the employer.

8.2 Are there nominated subcontractors in your jurisdiction?

Yes, this may be agreed on a contractual basis with the employer.

9 Payment

9.1 Are there any statutory or other requirements which govern how parties are paid?

The AB Standards include provisions regarding payment, including when payment is due.

According to AB 18 and ABT 18 (see question 6.2), the contractor is entitled – on written request to the client – to receive payment twice a month for any works and materials executed or delivered on the construction site.

However, the parties can also agree that payment is to be made in accordance with a payment schedule instead, which must follow the agreed master programme.

9.2 Are ‘pay when paid' clauses valid? In what circumstances?

A ‘pay when paid' clause may be included in the parties' construction contract. In Denmark, such clauses are sometimes seen, mostly in a contractor's subcontracts.

The parties must, however, be aware of the risk that a Danish court may modify or set aside such a clause, as it cannot be ruled out that a ‘pay when paid' clause may be considered unreasonably burdensome. This assessment will, however, depend on the circumstances.

9.3 How are retentions typically dealt with?

According to Danish law, a party in a contract is entitled to withhold payment if that party has a counterclaim. This also applies in construction contracts.

For example, if an employer considers itself to have a counterclaim towards its contractor, the employer may choose to withhold (offset its claim against) the payment to be made to the contractor.

Withholding of payments may include a substantial position risk, as the party withholding will – if not entitled to withhold the payment – be in breach of contract and obligated to pay the amount plus interest.

10 Health and safety

10.1 What key health and safety requirements apply to construction projects in your jurisdiction?

The Working Environment Act includes a wide range of obligations which must be adhered to by the relevant actors. On a general note, the employer (in a labour law sense) must ensure that the work is planned, organised and carried out in such a way as to ensure health and safety. This includes a wide variety of obligations, such as:

to arrange the construction site in a fully sound manner (eg, to prevent accidents);
to teach and instruct employees so that they may carry out the work in a safe manner, which must be done in a language that the employees understand;
to effectively supervise employees to ensure that work is carried out properly and that instructions are followed;
to provide the necessary safety equipment;
to establish a working environment organisation and conduct written workplace assessments; and
to cooperate and coordinate with other actors on the site.

During the design phase, health and safety issues relating to execution of the works must be taken into consideration. As such, the tender documents should include a description of the necessary safety measures.

The construction must also be performed in such a way that allows for (later) maintenance to be done in a safe manner.

10.2 What reporting requirements apply with regard to construction site accidents in your jurisdiction?

An employer is obliged to inform the Working Environment Authority of any industrial accidents in the workplace as soon as possible and at any rate within nine days of the relevant employee's first day of absence. This must be done if one or more of the following conditions are met:

As a result of the accident, the employee cannot perform his or her usual work for one day or more, not taking the day of injury into account;
The employee may be entitled to compensation in accordance with the Act on Protection against the Consequences of Industrial Accidents; or
The employee has not fully resumed work no later than five weeks after the day of injury.

Further details on industrial accidents and the duty to report such accidents may be found in the Ministerial Order on the Notification of Industrial Accidents issued by the Working Environment Authority and on the Working Environment Authority's website, which contains a number of helpful guides for companies.

10.3 What are the potential consequences of breach of these requirements – both for the contractor itself and for directors, managers and employees?

Presumably, the most common consequence of breaching the requirements in the Working Environment Act and/or associated ministerial orders is that the Working Environment Authority will issue an order or a prohibition notice.

However, the Working Environment Authority may initiate a criminal case depending on the breach(es) and is also entitled to issue a fine.

The responsible entity will, as a starting point, be the company. However, individual employees of the company in question may also be the subject of such measures taken by the Working Environment Authority. This will depend on the nature of the breach.

10.4 What best practices in relation to health and safety should construction contractors consider adopting in your jurisdiction?

The Working Environment Authority has issued a wide variety of guidelines, which can be found at https://at.dk/en/regulations/guidelines/.

10.5 Which bodies are responsible for enforcement of health and safety obligations?

The Working Environment Authority is responsible for enforcing the rules in the Working Environment Act and the associated ministerial orders.

One way in which this is done is through the inspection of companies. Such inspections may be either announced prior to the inspection or unannounced. To the extent that breaches of the legal requirements are discovered during inspections, the Working Environment Authority may serve a notice; but it is also entitled to prohibit further work until the breach has been resolved or issue a fine (see question 10.3).

10.6 What is the general approach in regulating the construction sector from a health and safety perspective?

In Denmark, the legislature, the relevant authorities and the unions afford high priority to matters such as health and safety. The general approach in regulating the construction sector and other sectors is thus to ensure a high level of health and safety, and to ensure the enforcement via different acts, ministerial orders and the like.

11 Environmental and sustainable development issues

11.1 What environmental authorisations are required for construction projects in your jurisdiction? Do these vary depending on the type of project or the location of the site?

The (environmental) authorisations required for construction projects vary depending on the size, complexity, location and so on of the construction. Such authorisations may relate to the actual construction, drilling and groundwater, wastewater, pollution in the soil and so on.

11.2 What is the process for obtaining environmental authorisations?

Requests for environmental authorisations are usually submitted to the relevant municipality before the activity begins. The permits are granted only if the project accords with the relevant Danish laws, local development plans and other relevant requirements.

11.3 What environmental requirements must the contractor observe while the site is operational?

There are many different environmental requirements that a contractor must observe while the site is operational; these will depend on issues such as the size of the building and the location of the construction. Some are specifically related to construction, while others stem from more general requirements.

For example, the use of materials that contain certain damaging chemicals is not allowed; and certain requirements apply to the type of wood used, waste sorting and so on.

11.4 What are the potential consequences of breach of these requirements – both for the contractor and for directors, managers and employees?

The consequences of a breach of the environmental requirements depend on the specific breach. Typical consequences may include an order to stop a certain activity or a fine.

The issue of identification of the responsible actor according to the applicable legislation should also be borne in mind. For instance, it may be agreed between an employer and a contractor that the contractor will be responsible for adhering to certain environmental requirements. However, if the relevant act prescribes that the entity to be charged is the employer, the employer will nonetheless be responsible for the breach towards the relevant public authority.

11.5 What environmental requirements apply to new buildings?

The environmental requirements for new buildings also depend on the location, size and so on of the building. For instance, the municipality of Copenhagen has certain environmental certification requirements for new buildings, depending on the value of the building. In such certifications, sustainability is a significant factor.

11.6 Which bodies are responsible for enforcement of environmental obligations?

This will typically be the relevant municipality – that is, the municipality in which the construction is performed.

11.7 What is the regulators' general approach in regulating the construction sector from an environmental perspective?

As a relatively ‘green' country, Denmark takes great pride in having sufficient and environmental-friendly requirements; and this is also true of the construction sector. Generally, the Danish environmental requirements may be considered high.

The Danish government's targets are to reduce the total amount of greenhouse gas emissions by approximately 50% in 2025 and 70% in 2030; and to be climate neutral by 2050.

11.8 What is the impact of Net Zero in your jurisdiction?

The recently enacted Climate Act aims for carbon neutrality by 2050, through a series of legally binding reductions. Thus, new solutions must be sought to achieve such goals – for example, through the construction of offshore artificial energy islands to harness wind power.

12 Insurance

12.1 What types of insurance arrangements - whether compulsory or optional - are typically put in place for construction projects in your jurisdiction?

Under the AB Standards, the employer is usually responsible for taking out and paying for standard fire and storm insurance, which also covers the contractor and its subcontractors.

The contractor must usually take out customary professional and product liability insurance.

In addition, it is often agreed that the employer will provide all-risks insurance which covers all contractors and subcontractors working on the project. Such insurance typically covers damage relating to storms, fire, water damage, theft, vandalism, damages to persons or things and so on.

12.2 If local insurance is required, can local insurers assign reinsurance contracts in your jurisdiction?

There are ordinarily no local insurance requirements in Denmark relating to construction projects.

12.3 Is it possible to obtain insurance for fitness for purpose design obligations?

Fitness for purpose obligations are rare in Danish construction law. Such obligations may be agreed in a contract; but under Danish law, a contractor's (or consultant's) responsibility is typically judged based on a good practice approach. Of course, there may be certain requirements in the contract and, if the work does not comply with these, the work will typically be categorised as a defect.

It will customarily not be possible to obtain insurance for fitness for purpose design obligations, as insurers consider this equivalent to providing a guarantee against defects.

12.4 What other forms of insurance feature in construction projects in your jurisdiction?

The types of insurance that are typically relevant in construction projects are described in question 12.1. In addition, the owner of a building typically takes out property insurance which usually covers damages relating to fire, short circuits, structural damages, loss of rental income and so on.

13 Employment

13.1 What legislation must employers and contractors be aware of when hiring labour?

Organised unions play a uniquely prominent role in Danish labour law. Minimum wages, working time and the like are not governed by law, but rather by collective agreements entered into by organised unions and employers' organisations. This is also referred to as ‘the Danish model'.

Some 70% of Danish employees are members of an organised union; and within the construction industry, this number may be considerably higher for certain employee groups.

As these collective agreements apply only to the parties included therein, labour clauses are commonly included in construction contracts. Such labour clauses include a provision that all workers must enjoy working conditions and wages no less favourable than those set out in the most representative collective agreement for comparative work.

14 Tax

14.1 What issues must be considered from a taxation perspective in relation to construction projects in your jurisdiction?

The issues to be considered from a taxation perspective will vary depending on factors such as:

the specific actors involved;
the type of project;
the country of registration; and
whether local or foreign employees are used.

Such considerations must therefore be made based on the specific project and actors.

14.2 Are any exemptions or incentives available to encourage construction in your jurisdiction?

Please see question 14.1

14.3 What strategies might parties consider to mitigate their tax liabilities in the construction context?

Please see question 14.1

15 Technology

15.1 How is Building Information Management (BIM) dealt with in your jurisdiction? Does the government mandate any particular BIM standards or other requirements?

The Danish Standard Association prepares – among other things – relevant standards on BIM. These standards are often part of the contractual documents and are often used as a baseline when assessing whether certain work is in line with good practice.

In 2019, the Danish Standard Association issued two new standards regarding BIM. The new standards help to ensure that various digital systems are compatible, so that all parties involved in the construction project may work with the data. This helps to facilitate much better control over the entire data flow in a construction project, and to ensure that all parties have access to and may use relevant data.

15.2 Are smart contracts used in your jurisdiction? Are there any special restrictions or regulations?

Smart contracts are generally not used in Denmark in a construction context. There are no specific restrictions or regulations regarding the use of smart contracts.

It is impossible to say whether smart contracts will gain a foothold in the Danish construction market over the next five to 15 years; but currently, the market does not offer any realistic alternatives to the traditional methods of drafting contracts, as these are often quite complex, especially in larger construction projects.

15.3 What developments in digital technology do you see having a major impact on the construction industry?

It is always difficult to predict the future. However, in recent years, the use of technologies such as BIM and Virtual Design and Construction has already increased.

That said, the construction sector has seen a relatively low increase in productivity in recent decades compared to other sectors. All digital technologies contributing to an increase in productivity will presumably have a considerable impact on the industry.

For instance, the construction process is currently characterised by a ‘project-based' approach, meaning that all projects are more or less planned, designed and executed from scratch. Accordingly, all technologies contributing to more optimised and standardised processes should have a high value to the market.

16 Disputes

16.1 In which forums are construction disputes typically heard in your jurisdiction?

Under the AB Standards, the relevant forum for disputes is the Danish Building and Construction Arbitration Board, an arbitral body that specialises in construction disputes. The Arbitration Board handles about 400 arbitration cases and over 1,000 requests for expert opinions a year.

Construction disputes are also sometimes heard by the public courts, if arbitration has not been agreed upon. However, this is more the exception than the rule.

16.2 What issues do such disputes typically involve?

The issues that such disputes involve vary greatly.

Typical issues may include:

whether a contractor is entitled to an extension of time and compensation related thereto; or
whether a certain work is considered defective.

In the coming years, we expect to see several cases involving the question of whether the employer or the contractor bears the temporal and economic risks arising from COVID-19 related delays and costs.

16.3 How are disputes typically resolved?

Most disputes are customarily resolved between the parties before reaching arbitration or other dispute resolution forums – often through escalation of the dispute to senior levels of management among the parties.

16.4 Is the use of alternative dispute resolution common and/or encouraged by legislation or the courts?

The use of alternative dispute resolution is an integrated part of the AB Standards, with the so-called ‘dispute resolution ladder' and provisions on mediation and conciliation.

According to the dispute resolution ladder, efforts must first be made to resolve and settle a dispute between the parties through negotiations between the project managers; if this proves unsuccessful, the management representatives must seek to settle the dispute by negotiations.

Mediation, conciliation, speedy resolution or arbitration cannot be initiated before this negotiation procedure has taken place.

The AB Standards also include provisions on mediation and conciliation, which must take place if either party so requests.

In addition to a usual expert appraisal, the AB Standards allow for a decision on the security provided if requested by either party. This mechanism is an attempt to swiftly resolve questions relating to the security provided by the contractor or employer. Accordingly, there is a 10-working-day deadline for the expert to decide to what extent a claim should be allowed after receiving the last pleading and any supplementary information.

Finally, the AB Standards include a provision on speedy resolution. This procedure may be initiated with regard to certain disputes, including:

questions relating to the client's right to order a variation;
disputes over the adjustment of the contract sum;
disputes with a monetary value of less than DKK 200,000; or
if otherwise agreed between the parties.

However, in practice, the use of these alternative dispute resolution mechanisms is not as common as it could be.

16.5 Is the use of dispute boards common in your jurisdiction?

Dispute review boards are not part of the AB Standards and are not commonly used.

However, in larger construction projects, dispute review boards are sometimes agreed upon.

Members of the dispute review board are typically appointed by the parties, and the dispute review board may provide (initially non-binding) suggestions and recommendations to the parties.

16.6 Have there been any recent cases of note?

In recent years, a number of cases have concerned the use of so-called ‘MgO boards' (wind barriers). A couple of years ago, it emerged that such boards are not suitable for the Danish climate and thus need to be replaced.

The question in the cases has mainly been whether the use of MgO boards could be considered as development damage, as a result of which the contractor installing them and the consultant choosing them would be free from liability towards the employer. In Danish construction law, this assessment depends mainly on the knowledge in the industry at the time of construction, including whether the material was considered to accord with good practice at the time.

17 Trends and predictions

17.1 What has been the impact of the COVID-19 pandemic on construction in your jurisdiction?

The Danish building and construction sector is generally doing well. Activity within the sector gradually and consistently increased during 2020, and this trend is expected to continue during 2021.

That said, COVID-19 related restrictions and related challenges in supply chains have had a negative effect on specific construction projects and actors. Most of the larger construction projects in Denmark are incurring delays and substantial additional costs due to COVID-19 related circumstances.

17.2 How would you describe the current construction landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

The AB Standards were updated in 2018. Although the update was largely a codification of existing rules established by the courts and the Danish Building and Construction Arbitration Board, actors in the Danish construction industry are still getting accustomed to the new standards. The is perhaps the reason why some parties are still using the former AB Standards, although the majority of new contracts are based on the new standards. In 2018, the Danish Building Regulations – which set out the rules and functional requirements for the construction of buildings in Denmark – were also updated.

With regard to current and forthcoming projects, the outlook remains very positive. A number of major and high-profile offshore and sea projects should be realised in the coming years. These include:

the world's largest immersed tunnel connecting southeast Denmark with north Germany (the Fehmarn Tunnel project);
the world's first energy island in the North Sea, which will provide green energy to up to 10 million households; and
the construction of a whole new island (Lynetteholmen) in the northern part of Copenhagen Harbour between 2035 and 2070. It is estimated that Lynetteholm will be home to 35,000 residents and create as many new jobs, and many preparations for this project are now underway.

18 Tips and traps

18.1 What are your top tips for smooth completion of construction projects in your jurisdiction and what potential sticking points would you highlight?

While this is easier said than done, following the time schedule and adhering to the contractual requirements usually help to ensure smooth completion of the project and happy contracting parties.

The contract documents should always be carefully reviewed before signing. This is sometimes given a lower priority, which may result in unwelcome surprises during the construction. Naturally, engagement of local counsel from the start will help to ensure that the project gets off on the right footing and is structured to afford the best framework for success.

Documentation is another important factor from a legal point of view. Even when all might seem well and there is a good contractual relationship between the parties, ongoing documentation of the status of the works, obstacles, additional claims and so on often proves very helpful in case of a later dispute – even though it might seem superfluous at the time. This documentation may consist of pictures, meeting minutes, correspondence and so on.

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.

Denmark: Construction Comparative Guide