A construction contract is an agreement that is concluded between the main customer and the contractor for construction, installation or repair work. The contract most often involves the achievement of the intended goals by the contractor for a certain time and payment for the work performed by the customer in full and within the terms established by the terms of the contract.
The conclusion of any transaction is an event with increased financial and legal risks for both parties. And the construction contract in this case is no exception. Both the customer and the contractor cannot be insured against risky situations. However, each of them has the right to defend their interests in the arbitration court.
Legal practice shows that conflicts arising in the framework of the execution of a work contract are among the most time-consuming in the category of arbitration cases. Often, a number of unforeseen situations are wedged into the “do the job – get paid” scheme, which can lead to a violation of the terms of the contract.
In this article, we will consider the most frequently arising disputes in the framework of the execution of a construction contract, as well as ways to resolve them in an arbitration court.
Disputes under a construction contract: legal regulation of the issue
Today, the regulatory legal acts of the Russian Federation do not provide for the resolution of disputes arising under these agreements in accordance with general rules. The regulation of legal relations within the framework of contract agreements implies an orientation towards various types of contracts, from which the construction contract stands out as a separate type.
As for the legal grounds, contract transactions in the construction industry are regulated primarily by the following chapters of the Civil Code of the Russian Federation – Chapter 37 “Contract”, Chapter 9 “Transactions”, Chapter. 27 “Concept and terms of the contract”, chapter 28 “Conclusion of the contract” and chapter 29 “Change and termination of the contract”. Certain provisions of a construction contract may be regulated by federal laws, for example, “On the Protection of Consumer Rights”, “On Architectural Activities” and “On Investment Activities” and others.
Arbitration disputes under a construction contract: when do they arise?
Formally, disputes within the framework of the execution of a contract agreement may arise on any of the points of the contract signed by the parties. However, there are a number of violations that most often lead the customer and contractor to the courtroom. Let’s consider these cases in more detail.
1. Violation of the rules for drawing up a work contract.
A contract agreement in the construction industry implies the presence of essential conditions, without which the contract cannot be considered concluded and have legal force. This situation can occur if the text of the contract is drawn up without the participation of a qualified lawyer or using a template copied from the public domain.
If such a situation has occurred, then it is important to know that it will be difficult to prove one’s case, for example, in a situation of incurred losses or incorrectly accepted work, with such an agreement. That is why the parties are advised to apply to the court with a requirement to recognize the contract as void in order to draw up and sign a new agreement.
2. Violation of the procedure for accepting completed work and incorrect drawing up of the relevant act.
One of the most common situations is the acceptance of work performed by an unauthorized person on the part of the customer. It is important to consider that a person with qualifications and signing authority should be responsible for inspecting the finished object. As a rule, this is the chief engineer, deputy director, or both of these persons. Involvement of a third company, as a rule, is illegitimate, if it is not implied by the signed agreement.
Also in the category of frequently arising disputes is the acceptance of the work of customers in violation of the procedure or deadlines.
3. Failure to fulfill essential obligations of the construction contract.
As a rule, disputes arising on this basis relate to the failure of the customer to provide the necessary documentation. This is a violation of clause 2 of article 743 of the Civil Code of the Russian Federation, which obliges to provide the necessary technical and other necessary documentation in a timely manner and in the manner prescribed by the contract.
4. The need to perform work not provided for by the contract.
According to Article 743 of the Civil Code of the Russian Federation, the subjects need to describe in detail the list of work performed and their cost at the stage of drawing up and signing the contract. However, if the agreement is designed for a long period, then external factors related to rising prices or the need to increase the amount of work may intervene in the process. As a rule, contractors make concessions in order to fulfill their obligations and reduce the risk of refusal to accept work. In the future, all material losses and losses incurred by contractors are trying to compensate in court.
5. Violation of the order and amount of payment.
The construction contract provides for the exact cost and a time period predetermined by the parties.
poison and payment terms for the work performed. Deviation from the agreed conditions entails an appeal to the court by the contractor.
6. Poorly executed work.
If during the acceptance or operation of the object violations in the construction technology were revealed, the customer has the right to claim compensation in court. As a rule, this may require additional independent examinations by third-party experts.
Resolution of disputes under a construction contract: terms and difficulties of proof
As we noted earlier, disputes over construction contracts are considered one of the most difficult in terms of evidence. This is due to the large amount of technical and budget documentation that the court must study in order to make a fair decision. Often cases are several volumes. Because of this, the time for consideration of one such case can range from several months to a year or more. If there is an opportunity to file an appeal and a cassation complaint, this period is extended by several more months.
The procedure for going to court in the framework of a dispute between the customer and the contractor
Stage number 1. Search for information about the existence of bankruptcy proceedings.
If a bankruptcy procedure has already been initiated in relation to one of the business entities and an arbitration manager has been appointed, then the procedure for legal proceedings – especially in cases of debt collection – will be different.
Stage number 2. Drawing up a pre-trial claim.
Disputes under a construction contract belong to the category of cases in which the claims procedure for resolving conflicts operates.
A pre-trial claim is drawn up in a simple written form with a clear indication of the violation and requirements, which will later become the basis of the statement of claim.
The subject is obliged to respond to the claim within 30 working days from the date (or other period specified in the agreement) when he received the appeal or should have received it. Lack of response is equated to a negative decision and is the basis for filing a lawsuit in court.
Stage number 3. Filing a claim in court.
The claim is filed within the limitation period from the date when one of the parties learned about the violation or should have known about it. As part of the settlement of a conflict under a construction contract, the limitation period is 1 or 3 years, depending on the clause of the contract, for which the conditions were not met.
Drawing up a statement of claim is regulated by Article 125 of the APC of the Russian Federation, which contains the following requirements:
- The claim must contain the full name of the court that will hear the case.
- Complete information about the complainant and the defendant must be provided.
- A clear description of the requirements. If the claim is filed on the basis of debt collection, then the full amount of the claim is prescribed, taking into account the accrued penalties and fines. The invoice must be attached to the claim.
- Data on pre-trial settlement of the dispute – the date of filing the claim, the response received or the fact of violation of the deadlines.
- Formation of a petition for the possible application of interim measures on the defendant’s assets.
Note that violations in the process of drawing up and filing a statement of claim entail the suspension of its registration or consideration until the existing deficiencies are corrected.
Stage number 4. Protecting your interests in the arbitration court.
As we noted earlier, the term for consideration of the case may be delayed and exceed one year. As part of the legal proceedings, the court has the right to familiarize itself with all available documents and evidence, appoint a number of additional examinations, and also call the required number of witnesses to testify.
Stage number 5. Obtaining a decision based on the results of legal proceedings.
The term for the entry into force of a court decision is 10 days in writ proceedings or 15 days in summary proceedings from the date of receipt of a copy of the court order. During this time, the losing party has the right to file an appeal.
VALEN lawyers protect the interests of deceived customers and violated contractors’ rights in the framework of pre-trial dispute resolution, as well as in the courtroom. Our team has extensive experience in recovering the amount of the principal debt, lost profits and compensation “for the use of other people’s money.”