The construction market in Austria is mainly governed by the Austrian General Civil Code (see Articles 1165 et seq of the Austrian General Civil Code – Allgemeines bürgerliches Gesetzbuch – ABGB and www.ris.bka.gv.at).

The use of certain standard contracts is generally not mandatory in Austria. Only in public procurement procedures is the application of ÖNORM B 2110 issued by Austrian Standards International obligatory (deviations are possible if there are compelling reasons). However, the parties to a construction contract (in any constellation, including employer-contractor, contractor-subcontractor, etc) frequently use the general terms and conditions of ÖNORM B 2110 issued by Austrian Standards International as a basis and agree on deviations in the individual contract. The use of the FIDIC standard forms is limited to projects where the European Bank for Reconstruction and Development or another sponsor demands that the contract is concluded under these terms.

In Austria there are mainly the following types of employers:

• developers who build with the aim to have an exit upon finalisation;
• institutional investors such as real estate funds and family offices;
• private owners; and
• public bodies in connection with infrastructure projects.

For the execution of the construction work, the owner mainly enters into a contract with a general contractor who, in turn, uses subcontractors.

Rights and Obligations

The rights and obligations of the employer are determined by the specific contract, by the frequently used general terms and conditions ÖNORM B 2110 and by the Austrian General Civil Code (Articles 1165 et seq). The employer’s primary duty is the payment of the price within the specified timescale against delivery of the finished building. The construction agreement normally also covers the transfer of intellectual property rights so that finishing and altering the building is possible without further consent.

Generally speaking, master builder companies act as general contractors and subcontract specialists such as electricians or HVAC companies. There are a few large companies (some of them listed) who work throughout Austria (and in the wider CEE/SEE region) and a vast number of “mid-sized local heroes”. It is common that where buildings are constructed for an institutional investor, the developer who sells the building also takes the role of the engineering, procurement and construction (EPC)-contractor so that the investor has just one point of contact and in turn subcontracts planners and a general contractor.

Both general contractor models and EPC-models are widely used.

In the general contractor model, the owner uses an architect and an engineering team for the planning. Normally, the owner has a single planning contract with a main planner/designer and only concludes contracts with specialised planners for statics, building physics, etc. For the execution of the construction work, the owner concludes a contract with a contractor who, in turn, uses subcontractors.

In the EPC-model, the owner contracts with a single company that assumes full responsibility for the planning and realisation of a project.

Rights and Obligations

The rights and obligations of the contractor are again determined by the specific contract, by the frequently used general terms and conditions ÖNORM B 2110 and by the Austrian General Civil Code (Articles 1165 et seq). The contractor’s primary duty is to deliver the completed building; it does not need to do the work itself but is free to use – under its responsibility - subcontractors. The agreement normally also covers other duties, such as the duty of loyalty, transfer of intellectual property rights, and obligation to have adequate insurance.

In Austria, subcontractors are typically mid-sized to small companies that specialise in a particular field.

There is usually only a contract between the EPC/general contractor and the subcontractors, but not between the subcontractors and the employer (however, the employer normally also has the right to take over the subcontracts if its contract with the EPC/general contractor is terminated). This contract is typically a contract for work and services in which the contractor assumes the role of the employer and the subcontractor takes the place of the contractor, so the same rights and obligations as listed in 2.2 The Contractor apply.

Typically, construction projects are financed by banks, insurance companies or real estate funds. For this purpose, the developer takes out a mortgage loan with the respective bank and undertakes to repay it in one amount after the finalisation of the works and exits the arrangement by selling the building. Most financing contracts in this field provide for a flexible interest rate and the payment of interest during the term and the capital at the end.

Generally, designers are smaller firms owned by planners.

General planner models are most often used. In the general planner model, the employer uses only one architect for the planning. This general planner then concludes contracts with specialised planners for statics, building physics, etc, and also with specialists for the supervision of the building works.

The main obligation of the planner is the planning based on the requirements from the employer and obtaining the necessary permits. The planner is responsible for the project’s success in this regard – ie, that the plan both fulfils the requirements of the employer (eg, a hotel with 100 rooms, a restaurant and a spa) and the legal requirements to obtain the necessary permits. The supervision part of the roles has more elements of a service contract. In addition, in all contracts the transfer of the relevant intellectual property rights is agreed upon.

In Austria the scope of the works in construction contracts is either determined based on a detailed list of construction works or on functional definitions of the works. Sometimes employers use a combination of the two by defining functional requirements which must be reached as a minimum and then adding a list of construction works for which the contractor is responsible and where the contractor takes the risk as to whether the list is sufficient to fulfil the functional requirements.

The law does not contain a right for the employer to demand variations of or changes to the scope of the works. Therefore, construction contracts regularly contain specific provisions for change orders. ÖNORM B2110 contains specific provisions on the procedure for changes and for the effects of the change request on the price and timeline.

Usually, it is agreed that the same calculation principles that were applied to the original contract (even for fixed, flat-rate prices where the detailed calculation is not disclosed) shall also apply to any changes/variations – meaning a good price shall remain a good price. However, extension of time above a threshold normally contractually entitles the contractor to apply indexation to the prices.

Usually, planners are responsible for all design works and supervision of the works. However, there are also other models.

General Contractor Model

In the general contractor model, the owner uses a planner for the planning. The owner normally concludes a contract with a general planner who then concludes individual contracts with specialised planners for statics, building physics, etc, and also with specialists for the supervision of the building works involved. For the execution of the construction work, the owner enters into a contract with a contractor who, in turn, mandates subcontractors.

EPC Contractor Model

In the EPC contractor model, the owner contracts with a single company that assumes full responsibility for the planning and realisation of a project.

The responsibilities regarding the construction process depend on the model used in the construction process.

In the EPC model, the general contractor (the “EPC-contractor”) is solely responsible for all works, as there is no contractual relationship between the employer on the one hand and the subcontractors and suppliers on the other. If the work is individually allocated, the employer has direct contracts with the craftsmen. The contractor is responsible for the construction process, and the employer must supervise the project and in the case of individual allocation of the works must also co-ordinate the different work streams.

If the contractor is managed and supervised by the architect, the architect is responsible for the management of all works and each contractor for its specific portion of work.

The responsibility for the status of the construction site (eg, regarding pollution, underground obstacles, geotechnical conditions or archaeological finds) lies by law with the employer as the land is the part of the works which the employers provide to the construction company to construct the building.

However, it can be agreed to a certain extent that the EPC-contractor is responsible for the status of the construction site. The test is whether the risk that the EPC-contractor takes can be calculated (eg, because it was in a position to conduct soil tests or has been provided with an expert opinion on the status). Also, a certain amount of contamination is normally accepted and has to be borne by the contractor and only contamination above this threshold cause extra costs to the employer.

Statutory law provides for additional specific obligations for contractors (eg, correct handling of decontamination works), but the remuneration for such works is agreed in the construction contract and normally paid by the employer.

With few exceptions, all construction works are subject to building permits, and for buildings used as production sites, an operating permit under Austrian trade law is also required before the start of the building works. If additional permits are required (eg, based on the Water Rights Act or Environmental Protection Act), the authority must as a basic rule co-ordinate all permit procedures. For large-scale projects, an environmental impact assessment might be required.

By law, the landowner is responsible for ensuring that all necessary permits for the construction measures have been issued. However, typically, the architect or the EPC-contractor is contractually responsible for obtaining the necessary permits.

There are no specific maintenance provisions for contractors under Austrian law. The employer is free to mandate any contractor of its choice for maintenance works. However, certain contractors typically agree to extend guarantee periods (eg, for the roof or façade or technical equipment), provided that the employer enters into a maintenance agreement with them.

Employers for large-scale projects typically hire, alongside the architect, project managers who manage and supervise the entire project and take over the administrative tasks.

In Austria, there are no general testing obligations for construction works. Typically, testing is part of the acceptance procedure agreed in the contract and must be prepared, organised, and performed by the architect and/or the contractor.

For some technical equipment – such as elevators, electric installations or chimneys – the authority requests certain acceptance procedures by qualified individuals. Furthermore, the architect must confirm in writing to the authority that the building has been constructed according to the permits and submit the necessary confirmations of the acceptance tests to the competent authority of the local community before the project can be inhabited or used for its intended purpose. An official inspection of the project is undertaken only if there are doubts with respect to the submitted documentation.

Typically, the acceptance procedure proceeds as regulated in ÖNORM B2110, whereby the contractor invites the employer to a joint acceptance. In the case of major defects, the acceptance fails. Minor defects must be reported and repaired within a reasonable period of time.

Takeover can also take place before acceptance. However, this involves risks regarding defects, as it may be construed as a waiver in relation to defects and may, from a technical point of view, complicate the allocation of responsibility for defects.

Defects Liability Period According to the Austrian General Civil Code

According to the Austrian General Civil Code there is no obligation for the employer to inspect the quality of the work after delivery and inform the contractor of any defects as the respective provision only applies to moveable goods and not to buildings or works on immoveable property. Nevertheless, in many construction contracts an inspection obligation is included and it is agreed that if the employer fails to carry out the inspection, it implicitly approves recognisable defects.

For construction works, the limitation period is generally three years from acceptance of the work, subject to interruption of the limitation period (eg, by filing a claim). After three years, defects can still be claimed under Austrian damage law, which provides for a prescription period of three years after the defects become known to the employer (ten years after acceptance of the work).

However, parties are free to agree on different provisions. In most cases the period for certain works such as load-bearing walls and roofs is extended to ten years, whereas the possibility to claim defects under damage law is also reduced to three years after acceptance.

As consideration for the services performed by the contractor, prices are usually agreed on the basis of the amount of time spent and material used (Regiepreise), or as unit prices (Einheitspreise) or fixed prices (Pauschalpreise).

Unit Prices

Unit prices determine the consideration for individual services that are listed as separate items in the schedule of services. They are defined for the individual units of quantity, so that the consideration owed for a service is computed after its completion. The quantities of services performed at unit prices are determined according to the terms of the construction contract, in accordance with their actual measure (by measurement, weighing or counting) or with their theoretical measure based on the underlying designs. Unit prices might change if the unit which has been basis for the calculation deviates significantly (as a rule of thumb more than 20%) from the units actually built.

Fixed prices

A fixed price may be agreed for individual services, for part of the project or for the entire project carried out by the contractor. Fixed prices should only be agreed upon on the basis of complete and clear documentation (ie, detailed project specifications, designs, etc).

Fixed prices can also be subject to price adjustment clauses.

Milestone Payments

Milestone payments are typically agreed on by the parties, with payments on account.

For building projects expected to be completed within to two years, indexation clauses are rarely used. In partnership models, however, defined parts (eg, steel) are usually exempted and subject to indexation from the start of the project. If the time for the construction is longer it is common practice to agree on indexation after a certain threshold period. In those periods for which no indexation has been agreed, the risk of large price fluctuations is borne by the contractor.

There are various concepts to prevent late or non-payment in construction contracts. Typically, the parties agree on a payment schedule consisting of milestone payments, to be paid on account. There can also be advance payments, which are typically secured by a bank guarantee.

Section 1170b of the Austrian General Civil code provides that the contractor of a building may demand security from the employer for the outstanding payment up to the amount of one fifth of the agreed payment, but up to the amount of two fifths of the agreed payment for contracts to be fulfilled within three months. This right cannot be waived. The contractor shall bear the costs of the collateral provided that they do not exceed 2% of the collateral amount per year. Securities pursuant to this provision shall be provided within a reasonable period to be determined by the contractor. If the employer fails to comply with the contractor’s request to provide security, the contractor may refuse performance and declare the contract void, setting a reasonable grace period (which leads to the fact that the contractor may claim the whole price minus what it has actually had to spend). This is, therefore, an extremely effective tool for the contractor to secure payments. However, this provision does not apply if the employer is a consumer or a public entity (state, counties, cities).

Typical billing methods used in construction contracts in Austria are payments on account (milestones) and final payment. Invoices are then sent to, and reviewed by, the company instructed with the supervision of the construction works.

There are typically the following planning phases in construction projects:

• strategic planning;
• preliminary studies;
• design planning;
• submission planning;
• invitation to tender;
• implementation planning;
• finalising planning; and
• supervision.

The architect/planner is instructed with all steps until invitation to tender and the supervision (unless a third party is separately engaged for supervision), whereas the construction company is responsible for the implementation and finalisation of the planning.

In most cases, there is a construction schedule that sets specific dates indicating milestones that must be reached by certain dates which is linked to a payment schedule based on the degree of completion. Contractual penalties are usually agreed to enforce compliance with the deadlines.

The construction schedule is often declared as binding.

The contractor has the right to an extension of the contractual performance period for a reasonable period if the execution of the project is delayed for a reason that is the employer’s responsibility. If the contractor is responsible for the delay, or if the reason for the delay cannot be ascribed to either party, (eg, acts of God, wars or pandemics), the risk is borne by the contractor. ÖNORM B2110 shifts the risk to the employer when the reason for delay cannot be ascribed to either party. The employer and the contractor are liable to each other for damage resulting from exceeding the agreed construction schedule.

For cases in which contractual performance periods are exceeded, the contractor agreement typically provides for reasonable penalties, which are, however, not owed where the contractor is entitled to an extension of performance periods. Also, the construction contract typically provides that a contractually stipulated penalty shall not constitute a release from remaining contractual obligations but shall be accounted towards the payment of any damages owed.

In the event of delays caused by the contractor, where there is no longer any prospect of completing the work on time, the employer has the right to withdraw from the contract without waiting for the agreed delivery date.

In the event of delays, the employer is entitled to claim damages (eg, loss of rental income, reimbursement of damages claims from tenants who have been promised a certain delivery date, or longer payment of interest on a bank loan) and the right to rescind from the contract after having set an adequate grace period.

Typically, contractual penalties are agreed in the event of delays in order to make it easier for the employer to prove the actual damage. However, such damages may not exceed 5% of the price actually owed to the contractor. Excess damages may be claimed if the employer can prove their amount.

If it is likely that the execution of the project will be delayed through no fault of the employer, the contractor must make additional arrangements in order to prevent further delays, such as increasing the size of the workforce or putting on additional work shifts. If the execution of the project is still delayed, the employer has the rights described in 5.3 Remedies in the Event of Delays. If the delay is without fault on the side of the contractor, the employer cannot claim damages or penalties; however, the burden of proof that there is no fault lies with the contractor.

An extension of time is only possible for the contractor if the delay is caused by the employer.

However, in the construction contract, it is normally agreed that in certain cases the contractor has an entitlement to the extension of the performance periods.

Austrian law does not expressly regulate force majeure, but this principle is nevertheless recognised in case law. If performance has become impossible due to circumstances for which the debtor is not responsible, the claim is considered extinguished. The debtor is no longer obliged to perform.

As part of the contractual freedom prevailing in Austrian private law, the parties involved may contractually extend or restrict the statutory scope of the application of force majeure. Such clauses chosen by the contracting parties generally override the subsidiary provisions of Austrian law. Many contracts and general terms and conditions contain a force majeure clause, according to which, for example, pandemics, official restrictions or other unexpected occurrences are to be qualified (or not) as force majeure.

Contractual force majeure clauses usually also contain provisions on the legal consequences (termination, liability for damages or grace periods) of late performance or non-performance due to the event that has occurred, if there is a causal connection.

Construction companies are trying to use the argument that the COVID-19 pandemic and the war in Ukraine constitute force majeure events, and that they are therefore entitled to a change in – ie, an increase of – agreed lump-sum prices and fixed unit prices as well as an extension of the construction period, even for existing contracts. It is highly probable that the risk of force majeure in construction contracts based on the Austrian General Civil Code must be borne by the construction company, whereas if the Austrian standard ÖNORM B2110 has been agreed for the construction contract, this risk must be borne by the employer.

However, these examples have led parties including clauses in construction contracts which shift or apportion such risks. This requires that construction companies do not just want to shift the risk to the employers, employers understand the request and solutions such as partnership-models are found.

Disruption understood as a loss of productivity due to a hinderance or interruption of the progress of the construction works, which reduces the rate of efficiency, is generally not acknowledged as a specific legal and/or contractual reason for extension of time and/or compensation. Such disruptions are normally treated the same way as delays (see 5.2 Delays).

According to mandatory law in Austria, it is not possible to exclude liability for:

• wilful misconduct or gross negligence for consumers and wilful misconduct or flagrant gross negligence for non-consumers;
• a claim under the product liability act; and
• damage to a person.

See 6.1 Exclusion of Liability.

Within the framework described in 6.1 Exclusion of Liability, the limitation of liability is possible. Consequently, liability for slight negligence can be excluded in a contract with respect to damages to goods and rights (not to a person). The entire system of liability within this framework is dispositive (there are further exceptions for consumers, such as no change of the burden of proof); there is a broad scope for drafting contractual limitation of liability. Usually, liability is limited to a certain amount, especially to the amounts of the insurance cover of the contractor. Furthermore, it is often agreed to limit liability to foreseeable damages and to exclude indirect damages. Loss of income is also sometimes excluded. The latter exclusion of certain types of damages, however, faces the risk of being deemed to violate bonus mores and to be void.

Indemnities are generally used to limit risks to the employer. Typical subjects would be damage/loss of profit due to delays and third-party claims (eg, damage to the neighbouring property due to the construction works or claims of tenants to reduce the rent due to disturbance during construction works).

Employers are typically granted the following in the form of an abstract, irrevocable guarantee within the meaning of Section 880a of the Austrian general Civil Code from a major Austrian bank or insurance company (some employers also accept German banks and insurance companies):

• a pre-payment guarantee (Anzahlungsgarantie) to secure down payments at the beginning of the works;
• a performance guarantee (Fertigstellungsgarantie) securing all obligations of the contractor under the contract (eg, reimbursement of excess payments, costs for substitute performance by the customer in case of early termination of the contract, etc);
• a guarantee to free the usual deductions of 10% from milestone payments (Deckungsrücklassgarantie); and
• a warranty guarantee (Haftrücklassgarantie) securing the contractor’s liability for defects.

The contractor has the right to demand a payment guarantee in order to secure payment of the agreed price (see 4.3 Payments).

Master builders are obliged by law to have third-party liability insurance with a minimum cover per case and per year depending on the size of the company. Architects must also have such an insurance; however, the minimum cover is very low.

Typically, the contracts provide that the parties must take out the following insurance cover:

• the architect or the EPC/general contractor demand that the employer has sufficient insurance coverage for third-party damages and for defects of existing buildings and installations (Bauherrenhaftpflichtversicherung); and
• the employer demands that the contractor insures the work in progress (Bauwesenversicherung).

In the event of bankruptcy of a contractor, the court-appointed receiver may choose whether to finalise the works or terminate the contract. The employer has no special right to terminate the contract early, but has to rely on the termination rights for delays and non-performance. It is also not possible to agree that the employer is granted the right to terminate the contract early in the event that insolvency proceedings are begun. However, it is possible to agree on a termination right if there are certain financial difficulties on the part of the contractor (eg, a reduction of its credit under a certain threshold or liquidation of parts of the company) before the opening of bankruptcy proceedings.

In addition, contracts often include a right for the employer to make direct payments to subcontractors that will be deducted from the contract price if the contractor does not pay its subcontractors on time.

Regarding financial difficulties of the employer, contractors have the right to suspend their works if they are not paid on time. With respect to the right to withdraw from the contract the same principle as for the contractor apply.

The concept of sharing risks in a construction contract is becoming increasingly common in Austria.

Based on a partnership model, the total price of the general contractor is split into the costs that the construction companies expect for the individual trades to be awarded to subcontractors. As soon as the actual award to the subcontractors then takes place, any negotiation success of the general contractor is split between the construction company and the employer – usually in a ratio of 50:50. On the other hand, any increase over the prices disclosed for the subcontractors (usually up to a maximum amount) is split in a ratio more favourable to the employer (for example, 80% of the increase is borne by the construction company and 20% by the employer).

In addition, fixed prices are also increasingly being split into the individual cost types on which the calculation of the unit price or lump sum price is based. Fixed prices continue to be agreed for components that can still be calculated in principle, such as wages and central overheads. In contrast, for materials, where prices have been very volatile in the recent past, only price escalators will be agreed. This allows price changes for the items whose prices are most difficult to estimate to be passed on to the employer, which also benefits the chance that a market, which is currently overheated for some materials, will calm down again.

There are various mandatory provisions for a contractor’s personnel (work security, laws on dismissing employees, laws on minimum wages, laws on employment of foreigners, laws on social security, etc). While the employer may only be held responsible in some cases if the contractor does not observe such requirements, doing so will in any case have a negative impact, from both an economic (because the authority stops the construction) and a reputational perspective. Therefore, all construction contracts contain a provision to the effect that the contractor must comply with all these mandatory provisions and which indemnifies the employer in the case of a violation. Furthermore, such violation is also agreed to provide a right for early termination.

In addition, contracts often include provisions regarding key personal and their replacement, as well as the right of the employer to request that the contractor exchanges a specific person for rendering the works.

In Austria the contractor is free to enter into subcontractor agreements. Except for public procurement, where this needs to be disclosed and agreed upfront, the contractor is also free to sub-contract the entire scope of the works. However, contractors are responsible for ensuring that their subcontractors observe the statutory laws on works security, dismissing employees, minimum wages, employment of foreigners, social security, etc.

Employers often reserve the contractual right to approve subcontractors or to reject a named subcontractor for good reasons. Sometimes they also reserve the right to require the engagement of certain subcontractors.

Typically, contracts include a clause on the full assignment and transfer of all work results and other intellectual property rights to the employer.

In the event of a breach of the construction contract, Austrian law provides for a variety of remedies for the different parties involved.

For the employer, the most important remedies are rescission, reduction of the price or rectification of the defect. In principle, the employer must demand rectification of the defects capable of being rectified as a first priority and only subsequently choose which claim to pursue. Rectification costs are borne by the contractor but they can deny rectification if it is excessive.

In addition to the rights in terms of defects, the employer may also claim compensation for any damage caused by a defect, to the extent the contractor is at fault (whereby the contractor has the burden of proof that it acted without fault).

For the contractor, the most important remedies are the right to demand security for the payment of the agreed price (see 4.3 Payment), the right to stop the works temporarily, and the right to rescind the contract and demand payment of the price minus actual savings.

The subcontractor has no contractual relationship with the employer and so claims for breach do not apply.

It is common practice in Austria to contractually limit remedies. For example, it can be agreed that the contractor may choose whether to rectify or grant a price reduction (only for businesses).

It is also common practice to limit the remedies contractually to reduction or rectification (and to exclude rescission).

It is often agreed to limit liability to foreseeable damages and to exclude indirect damages. Sometimes loss of income is also excluded. The exclusion of certain types of damages faces, however, the risk of being deemed to violate bonus mores and to be void. The same is true of the exclusion of liability for wilful misconduct and gross negligence in these cases.

It is often agreed that the contractor is not entitled to a retention right for the building, but has to hand over the building and cannot keep it as security for payment of the remaining price. On the other hand, it is always agreed that the employer has a retention right to keep 10% of the milestone payments as security for the performance of the contractor’s obligations until acceptance of the building.

For as long as the project has not been completed, the employer may terminate the construction contract at any time in exchange for payment of the full price minus expenses saved by the contractor as a result of the employer’s termination. Here it is often agreed that in such a case the employer only has to pay the value of the (unfinished) building works already performed (and thus saves the calculated profit of the contractor on the remainder).

Disputes of up to EUR15,000 are decided by the local district courts (Bezirksgerichte), disputes above this threshold by the county courts (Landesgerichte). Only Vienna has specialised courts in commercial matters (Handelsgericht/Bezirksgericht für Handelssachen) which would be responsible for ruling on contractual disputes against businesses.

Even though arbitration is possible for businesses in both domestic and international matters in Austria, arbitration clauses are typically found only in contracts regarding large or complex projects involving international parties. The Austrian Civil Procedure Code provides for detailed rules on arbitration which apply besides the rules of the arbitration institution chosen. For consumers, arbitration is only possible for a specific, already existing dispute.

Although arbitration courts in Austria also offer and promote mediation, it is rarely seen in Austrian practice because of the good reputation of the state courts and arbitration tribunals when it comes to resolving construction disputes by way of settlement.