Commercial construction agreements are not governed by any specific legislation. Instead, they rely on standard contracts that have the status of agreed documents. Construction agreements where the employer is a consumer is governed by the Consumer Services Act (1985:716).

The Swedish Planning and Building Act (2010:900) and its associated ministerial orders primarily regulate statutory requirements for building and construction.

Additionally, the Contracts Act (2015:218) may be applied with regard to the invalidity or adjustment of a commercial construction agreement with reference to, for example, unreasonably burdensome contract provisions. Finally, following judgments from the Supreme Court in recent years, the and the Sale of Goods Act (1990:931) may be used to a certain extent in the interpretation of construction agreements.

The use of standard contracts is industry standard in the Swedish construction industry ‒ both for small and larger constructions, and irrespective of project type. However, the use of standard contracts is not mandatory. Although they embody Swedish legal principles to a degree, their application is contingent upon mutual agreement by the contracting parties.

The Swedish so-called AB Standards are the result of negotiations within the Construction Contracts Committee (Byggandets Kontraktskommitté, or BKK), which is a non-profit organisation constituted by various interest groups in the Swedish construction industry. The Construction Contracts Committee is responsible for the publishing of the key standard construction contracts used on the Swedish market, as follows.

• AB 04 ‒ outlines the general conditions for building and civil engineering works and building services when the employer oversees design and planning, leaving execution to the contractor. In the agreement between the main contractor and its subcontractors, AB-U 07 shall be agreed as an add-on agreement to AB 04. AB 04 bears many similarities to the International Federation of Consulting Engineers (Fédération Internationale des Ingénieurs - Conseils, or FIDIC) Red Book, although there are also several key differences.
• ABT 06 ‒ sets the conditions for design-and-build contracts where the contractor assumes responsibility for both the design and the construction of the project. In the agreement between the main contractor and its subcontractors, ABT-U 07 shall be agreed as an add-on agreement to ABT 06. ABT 06 bears many similarities to the FIDIC Yellow Book, although (as with AB 04) there are also several key differences.
• ABK 09 ‒ specifies the general conditions for consultancy services in architectural and engineering assignments, defining the relationship and responsibilities between an employer/contractor and its consultant. ABK 09 may be viewed as a Swedish version of the FIDIC White Book, although there are several important differences here as well.
• ABM 07 ‒ specifies the general conditions of contract for the procurement of goods and materials to be used in a construction project, and is used between contractors and their suppliers. In contrast with the above-mentioned other standard contracts (ie, AB 04, ABT and ABK 09), ABM 07 replaces and supplements Swedish law in the form of the Sale of Goods Act (1990:931), which would be applicable to such agreement in the absence of agreed specific terms.
• ABA 99 ‒ specifies the general conditions for the supply of industrial works in major production facilities and may be used in a range of different types of projects. ABA 99 is often agreed in connection with the delivery and installation of wind turbines and other types of electrical power plants, waste and sewage handling facilities, warehouse or industry automations and other similar production facilities with a focus on capacity and availability. ABA 99 is not a part of the AB Standards negotiated and agreed by the Construction Contracts Committee. Instead, ABA 99 is a non-negotiated document published by the Technology Industries of Sweden (Teknikföretagen), an industry association for suppliers of various types of technology-based products and facilities. However, despite being a non-negotiated document, ABA 99 is widely used, whereby the employer/customer would normally specify its project specific amendments to ABA 99.

In Sweden, a diverse range of entities serve as employers for construction projects. These include the Swedish state or state-controlled entities, regional authorities, municipalities, the private sector (including institutional investors such as pension funds), and housing co-operatives.

Employer’s Rights and Obligations

Typically, the employer is responsible for:

• providing the contractor with the basis for tender;
• providing payment/security/insurance to the contractor;
• securing necessary construction approvals; and
• arranging the inspection of the contract works.

The employer is typically given various supervisory and regulatory duties and privileges in relation to the contractor. This includes, inter alia, the right to:

• terminate the contract for the remaining works under certain circumstances, such as significant delay, defective work, insolvency, or force majeure;
• cancel parts of or the contract works in their entirety at the employer’s discretion – in which case, the contractor is entitled to certain compensation according to the agreement; and
• compensation for loss due to the contractor’s negligence, delay, omission, or defects.

The contractors in Swedish construction projects can be categorised into two main types:

• general contractors ‒ larger construction groups that handle comprehensive general contracts (ie, taking full responsibility for all other contractors/consultants in the project), often on a design-and-build basis; and
• specialised contractors – contractors that focus on specific construction areas and often work as subcontractors to a general contractor (eg, various installation companies).

Contractor’s Rights and Obligations

A contractor’s primary role involves the planning and execution of construction works. It typically has the autonomy to decide on the methods of construction, unless specified otherwise in the agreement. Other key responsibilities include:

• supplying materials;
• providing, and during the liability period maintain, relevant security and insurances; and
• creating and maintaining time schedules.

Some of the contractor’s rights, among others, under the AB standards are the right to:

• carry out alterations and additions prescribed by the employer; and
• cancel the contract or suspend the works in the event of the employer’s failure to fulfil its obligations, provide adequate surety, or become insolvent, among other reasons.

The subcontractors in Swedish construction projects often have expertise in niche domains – notably, in technical services such as ventilation, plumbing and electrical works or various types of ground works. However, subcontractors to general contractors could also have a broader expertise.

The main contractor in a construction project acts as an employer to its subcontractors, mirroring the contractor’s own relationship with the employer. This parallel establishes similar rights and obligations for subcontractors as those held by the contractor. However, to avoid, for instance, identical notice periods, the main contractor is advised to include AB-U 07 or ABT-U 07 in its subcontractor agreement – the use of which helps the main contractor to avoid being “stuck in the middle” between the rights and obligations towards its employer and what it may require, or ultimately demand, from its subcontractor.

Construction projects where the employer is a private entity are typically funded by private banks. These financiers maintain separate contractual agreements with the involved parties to whom they grant financing – although they are not granted any inherent rights or duties within the construction agreement itself or towards any other party in the project, unless explicitly stated in said agreement.

Such inherent rights are in practice customary where the project developer’s finance provider will normally retain a step-in right to be able to finish a project for which it has provided financing.

The designer in Swedish construction projects is often a consultant specialised in design and constructions (ie, an architect firm or an engineering company). These are normally contracted by the employer in a build-only project where AB 04 is the agreed standard agreement and by the contractor in design-and-build projects where ABT 06 is the agreed standard agreement. The employer/contractor is advised to include ABK 09 as the applicable standard agreement in its contract with its consultants. Please refer to 3.3 Design for more information on the relation between the designer, the employer and the contractor.

In general, the main obligations of the designer under ABK 09 are to perform the execution of the assignment on time and subscribe for (and, during the liability period, maintain) relevant insurance. On the other hand, the consultant is entitled to reasonable remuneration for the work performed and the costs incurred, as well as for any changes or additional work. It is important to be aware of the fact that ABK 09 limits the consultant’s liability under the agreement to a sum equivalent to 120 so-called price base amounts, which for 2024 corresponds to approximately USD600,000. Project-specific increases of said limitation may often be advisable.

The scope of the contract works is determined by the contract documents, which include contract, basis for tender, technical specifications and descriptions, drawings, bill of quantities, and any other documents that show the agreement of the parties and the intended final result of the project, and which have been referred to in the main contract. This fundamental principle follows explicitly from AB 04/ABT Chapter 1 Section 1 and, in addition to regulating what work is included in the scope of works, it also dictates what works are excluded from the contractor’s obligations (ie, any work not specified in the contract documents). However (and as an exception to this rule), if the contractor is responsible for the design work and ABT 06 is agreed, the contractor’s obligations include not only what is described in the contract documents but also what is required by the intended use of the completed project as explained to the contractor by the employer. This is described as a “functional responsibility” for the intended use of the works.

So-called partnering projects, where the employer and the contractor jointly decide on the design and pricing of the works to be performed, are becoming increasingly popular in the Swedish market. In these cases, the intention is that the parties shall benefit from both parties’ experiences and competence in order to optimise the design, the production and the price. However, the general principle of how the scope of work is determined (as described earlier) will still apply and, in these cases, the parties are advised to be extra meticulous when specifying the works to be performed and who of the parties is responsible for different parts of the design, etc.

Variations Requested by the Employer

Under the AB Standards, employers may request work variations directly connected to the contract works. Variations can include additional or alternative services, or changes in service nature, quality, type or execution. Contractors are entitled to execute and be compensated for employer-requested variations, and the employer may not engage another contractor to engage such variations, as the right to performance of such works may be a part of the contractor’s assumptions when determining the price offered.

In addition, the employer has the right to order variations in the form of a reduction of the scope of works.

Variations Requested by the Contractor

Additional works that need to be executed in order for the contractor to be able to deliver the contract works could in some events be considered equivalent to variations order by the employer, even if not ordered ‒ for example, if the basis for the tender is incorrect or if the site or other circumstances differs from what could be assumed at the time of tender. If the construction agreement is based on ABT 06, equivalent variations must be notified to the employer without delay. Subsequent to such notice, the contractor may (and must) proceed with the planning and execution of such variations. In AB 04 contracts, the contractor must obtain the employer’s views without delay ‒ after which, the employer decides what variations shall be ordered and executed. The reason for the different regulation in AB 04 and ABT 06 contracts is related to where the responsibility for the design normally lies.

Price Determination

The contractor is entitled to additional compensation for ordered or correctly notified variations of the contract works that are needed. The value of work added shall be calculated primarily on unit prices (if such have been agreed on) and otherwise determined in accordance with the prime cost principle (cost plus overheads and profit) as specified in the AB Standards. If a variation reduces costs, the employer may be eligible for a price deduction.

Time-Related Costs

As part of the variation work, the contractor is normally entitled to any time-related costs (eg, for a prolonged establishment at the work site). However, in practice, it is not uncommon that the parties disagree on this matter, as the contractor may often not be able to determine whether a variation will affect the production time required until several variations combined entail a requirement to postpone the contract period. In such cases, the contractor should request compensation for such costs as a result of the various variations.

The responsibility for the completion of design works is primarily decided by whether the employer procures the project as a build-only project (for which AB 04 would normally be agreed) or a design-and-build project (for which ABT 06 would normally be agreed).

In the first situation, the responsibility to procure and provide all design works lies with the employer. In the latter situation, the responsibility to procure and provide the final building design lies with the contractor.

In both cases, the employer or the contractor respectively would normally fulfil its design obligations by way of contracting a range of consultants (where ABK 09 would be agreed), and the consultant will be liable for the correctness of its design in relation to the party who appointed it.

The employer is responsible for preparing the basis of the tenders. The employer can choose either:

• to contract one main contractor in a general contract, entailing that such contractor in turn would have to contract subcontractors to perform the total works; or
• to divide the project into several different contracts with several contractors – all of which report directly to the employer and without any direct contractual link between the different contractors.

Regardless of which model is used, the agreements with the one main contractor or the several contracts with the several different contractors can be in the form either a build-only contract (incorporating AB 04) or a design-and-build contract (incorporating ABT 06).

Please refer to 2.1 The Employer, 2.2 The Contractor and 2.3 The Subcontractors for a general description of the rights and obligations of the employer, the contractor, the subcontractors.

Information Regarding the Site

Unless otherwise agreed between the parties, the employer is assumed to have given all relevant information that can be obtained from expert inspection of the property or area affected by the construction. However, the AB Standards include a golden principle entailing that the responsibility for the correctness of data, results of investigations and technical solutions will always rest with the party that has provided them and that the approval of the other party of such documents, data, information, etc, will not limit this.

Normally, the employer will provide information, investigations, etc, regarding geotechnical conditions or underground obstacles to the extent known to the employer – usually as a result of geotechnical surveys. However, to the extent that such information is not provided in the tender documents or the information is insufficient to draw any comprehensive conclusions, the contractor shall calculate based on such conditions and costs that may be assumed following the contractor’s “workman-like determination”. The Supreme Court has ‒ through its judgment NJA 2005 p 3 (the so-called Gotland case) ‒ explained how the contractor should act in these situations.

Work Environment

According to mandatory rules under the Work Environment Act (1977:1160), the employer is responsible for ensuring that work performed is performed in a safe manner and in accordance with the work environment regulations applicable by law. Normally, the employer will delegate this responsibility to the contractor in the construction agreement, as it is the contractor who would normally have the best options to ensure compliance. However, certain parts of the work environment responsibilities may never be delegated in relation to the public authorities. This means that, even though the employer may have delegated the work environment responsibilities to the contractor between the parties, it is not possible to fully delegate the ultimate responsibility – and consequently such criminal liability that may follow from mandatory legislation ‒ in relation to the authorities. Hence, the employer may in certain cases be held responsible by the authorities for omission on part of the contractor.

Authority Interventions

Authorities have the power to intervene with enforcement notices or prohibitions if the site fails to meet legal standards (eg, those pertaining to pollution) or if archaeological discoveries are made. The risk for any such interventions lies with the employer, except when they arise as a result of the contractor’s actions.

Construction projects typically need a building permit from the local municipality, based on the employer’s application. This permit is mandatory and, in some cases, a filing may be necessary even without the need for a permit. Additionally, construction sites may require a time-limited permit for elements such as headlights, fences, and signs.

The employer must notify the Swedish Work Environment Authority and the Swedish Tax Agency Construction upon establishing the construction site. Obtaining confirmation from these authorities is a prerequisite for starting construction activities. Often, this responsibility is delegated to the contractor. However, as mentioned in 3.5 Site, it must be noted that this is a responsibility in relation to the public ‒ meaning that it will ultimately always be the employer’s responsibility in the event of any omissions.

It is the contractor’s duty to maintain and secure the works throughout the construction period (ie, until the total works are approved and handed over to the employer at final inspection). The contractor holds the risk for any damage or loss of the works and materials until the project is officially transferred to the employer. Post-handover, the employer assumes all responsibility for the maintenance of completed works, unless otherwise agreed explicitly ‒ for example, by prescribing that the contractor must perform yearly maintenance inspections during the warranty period and perform such yearly maintenance as may be required according to the maintenance plan.

Typically, the employer does not direct the contractor or third parties to manage operations, finance, transfer or other functions during the construction process.       

Inspections can be requested by the parties, and the other party or an appointed inspector can assess the compliance, completion and quality of the contract works. The inspections available include pre-inspection, final inspection, guarantee inspection, special inspection, re-inspection, and arbitration inspection – each with its own conditions, timing, and effects as stipulated in the AB Standards AB 04 and ABT 06.

To the extent any functions with regard to the works are to be tested, it is the employer by way of its appointed inspector or inspection organisation who is responsible for such testing.

The correct completion of the total works is assessed at the final inspection, as further detailed in 3.10 Completion, Takeover and Delivery.

A final inspection must be carried out, unless otherwise agreed by the parties, in connection with the expiry of the contract period. The final inspection shall be concluded with a meeting at which the inspector shall hand down their decision on whether the total works are deemed approved or not. Upon approval at final inspection, the total works are deemed handed over – in connection with which a number of legal consequences occur as, for example, the start of the warranty period and the start of a number of deadlines begin to run.

A party is entitled to request final inspection of a completed part of the total works if the employer starts using or requests to start using that part.

A party who is dissatisfied with the result of a final inspection may request an arbitration inspection where the conclusions made in connection with the final inspection are to be reconsidered by an arbitration inspector or a tribunal of three arbitration inspectors. It shall be highlighted that although the phrase “arbitration” is used, it is not a formal arbitration in the form of dispute resolution. The decision of the arbitration inspector or tribunal of arbitration inspectors is not binding unless the parties agree otherwise, and the decision may not be enforced as though it were an arbitration award.

There are a number of different rules to consider when discussing the contractor’s liability for, by way of example, defects and for damages to the works.

Production Phase

During the production phase, the contractor is liable for any and all damages to the works unless the damage is attributable to the employer.

Liability Period Following Handing Over

The period of liability is ten years from the handover and begins with the guarantee period. According to AB 04, the guarantee period is – if not agreed otherwise – five years for work performed and two years for goods and materials. According to ABT 06, the guarantee period is five years for the total works in their entirety, with the exception of special materials and goods (manufacture) specifically prescribed by the employer (for which the guarantee period is two years). It is common that the employer, wisely, dictates in the tender documents that the guarantee period shall be five years for the works in their entirety – mainly in order to avoid interface issues.

It is also common that the employer dictates that the employer must provide longer guarantee periods for certain materials or goods. The guarantee period for such materials and goods is never shorter than what the contractor may have been guaranteed by its sub-suppliers.

The purpose of the “guarantee period” is that the contractor is liable to remedy any defect that occurs during such period, unless the contractor can demonstrate that it is not responsible for the defect. Hence, the burden of proof lies with the contractor.

Following the end of the guarantee period, the contractor is only liable for substantial defects that appear if the defect is demonstrated to be attributable to negligence on the part of the contractor.

The contractor may not be held liable at all for circumstances or defects notified to the contractor after the end of the ten-year liability period.

Notification of Defects

Any defects must be notified to the contractor without undue delay. Any defects detected during the guarantee period must be notified to the contractor before the end of the guarantee period in order for the employer to invoke such defect as a guarantee defect.

As a general rule, claims for damages must be presented in writing no later than three months after the expiry of certain relevant periods as stipulated in AB 04/ABT 06.

The contract price may be a fixed amount, to be determined in accordance with the prime cost principle (cost plus overheads and profit), or a blend of both.

In the authors’ experience, a fixed price is the most common remuneration model. However, certain co-operation models (such as the “partner” model) are normally applied together with a remuneration model, which is based on the prime cost principle but with the addition of an incentive model. Usually, this would entail that the contractor may receive additional remuneration if it is able to complete the project at a lower cost than anticipated, but that the contractor is liable for parts (or whole) of any costs in excess of a budget price agreed between the parties.

In addition, for certain types of projects, remuneration is often determined based on a bill of quantities, whereby the contractor has offered unit prices for the various works included in such bill of quantities and where the unit prices are then multiplied by the actual amounts calculated upon performance of the works.

The parties normally agree on a production-based payment plan, either referring to specific dates or project milestones. In the absence of such payment plan, the contractor is entitled to invoice the employer for work performed, considering the employer’s right to withhold 10% on each invoice until a total of 5% of the agreed contract price has been withheld.

The AB Standards lack indexation clauses, which means that parties who wishes to make the contract price subject to indexation must agree specifically thereto ‒ in connection with which, the parties must agree on a specific index number relevant for their project and the projected cost types.

Please also refer to 5.6 Unforeseen Circumstances.

If a payment is late, a party (normally the contractor) is entitled to interest from the due date as specified in the Interest Act (1975:635), unless another rate of interest has been specified in the construction agreement. Advance payment may be agreed; however, in the authors’ experience, it is not commonly seen.

According to the AB Standards, invoices are due for payment within 30 days of receipt, unless specified otherwise. In the event of a dispute over any portion of an invoice, undisputed amounts must still be paid within the 30-day period. Often, employers stipulate in the tender documents that invoices must be prepared in a certain fashion and include certain information – in the absence of which, the employer is entitled to refuse such invoice.

The contractor is required to strategically organise the works to ensure completion within the designated timeframes, both for the works in their entirety as well as any agreed milestones. A detailed time schedule must be prepared by the contractor and submitted to the employer for review. The employer shall supply any necessary documentation for the contractor’s planning that employer may be in possession of. The contractor shall at the employer’s request supply information on how the work is progressing in relation to the time schedule.

The timely progress of the works is normally safeguarded by the application of liquidated damages for delay of milestones in order to incentivise the contractor to always follow the time schedule. However, if certain milestones have not been agreed or if liquidated damages for delay in relation to milestones have not been agreed, the employer will in practice have quite limited options to follow up delays or take measures against possible delays ‒ given that, in such a situation it is for the contractor to utilise and plan the agreed contract period as deemed appropriate.

Each party must notify the other party without delay of any circumstance that may cause disruption of the time schedule or delay the completion. After such notification, the parties must try to reach an agreement regarding the adjustment of the contract period.

For each week or part of a week of delay of the completion of the total works, the contractor must pay liquidated damages as specified in the construction agreement if the delay is attributable to the contractor. This also applies to delays in completing specific parts of the works (ie, milestones), where liquidated damages are payable if so agreed. Claims for liquidated damages must be presented in writing within three months of the approval of the total works, at the risk of forfeiture of the claim.

Liquidated damages for delay are the normal order and it is also advisable – given that this allows the employer compensation for delay without the need to present further evidence in relation to actual damage, while at the same time presenting the contractor with a clear prerequisite to base its tender on in relation to the timeframes for the project offered by the employer. Liquidated damages are typically agreed as a certain percentage of the contract sum for each commenced week and it is common that liquidated damages are also capped at a certain amount (eg, 10% or 15% of the contract sum). If liquidated damages for delay have been agreed, such liquidated damages constitute the employer’s sole remedy for the delay.

However, if liquidated damages are not agreed upon (which, in the authors’ experience, is uncommon), the employer is entitled to claim damages for its actual direct losses as a result of the delay.

The contractor is entitled to an extension of time in two main situations:

• where variations of the scope or increase in quantities according to the tender documents have occurred and entailed that the total works cannot be completed within the prescribed contract period; and
• where the contractor has been hindered in completing the total works within the prescribed contract period as a result of, for instance, circumstances attributable to the employer, a decision by an authority, war, defence preparations, epidemic, strike, blockade or lockout.

In both cases, the parties must try to agree on a new date for completion, as explained in 5.2 Delays. However, if the parties cannot agree (which tends to be the normal scenario), the contractor is entitled to an extension of the contract period to the extent necessary, considering the variations or hindrance and its effect on the time schedule. It is for the contractor to demonstrate the actual need of a time extension, as well as the length of the extension to be granted.

When assessing the need for an extension, among other circumstances, the following shall be considered:

• the contractor’s ability to minimise delays through efficient resource management, in line with the overarching principle of good faith between the parties; and
• established practices from the sale of goods law concerning a party’s control liability may offer interpretive guidance.

Issues of delay, liquidated damages and extension of time are among the more common subject of disputes in the Swedish construction industry.

The contractor is entitled to extension of the contract period due to war, defence preparations, epidemic, strike, blockade or lockout, with the exception of strike or blockade resulting from the failure of the contractor or of any of its subcontractors to fulfil their obligations to their employees.

Furthermore, if part of the work not yet handed over is damaged as a result of war, insurrection, natural disaster or comparable circumstances and the damage is substantial or otherwise substantially disrupts the conditions, both the contractor and the employer are entitled to terminate the agreement.

Although the term “force majeure” is not used in the AB Standards, the above-mentioned rights of the parties are based on the same principles that are generally applicable when determining whether there is a case of force majeure.

The AB Standards include several provisions designed to handle unforeseen circumstances.

Firstly, there are several provisions relating to unforeseen additional work pertaining to geotechnical conditions, omissions in the employer’s documents or other circumstances that the contractor could not have been expected to base calculations on. These types of unforeseen circumstances are handled as so-called equivalent variations, where such additional work as required is deemed to have been prescribed by the employer, who is also obligated to compensate the contractor for such additional work.

Second, there is a specific “hardship” clause included in the AB Standards that allows, primarily, the contractor to demand an adjustment of agreed prices in certain situations – for example, if prices have increased as a result of an epidemic or pandemic or war, or if prices for materials have increased beyond what is the be deemed normal. However, adjustment of prices may be made only if the change in costs has not been foreseeable and if the change in costs substantially affects the whole cost of the total works.

This hardship clause has been heavily debated during recent years, following the extreme increase in costs for many different materials and other supplies, such as fuel and electricity. However, the clause itself is somewhat ambiguous, which has led to a very large number of disputes between employers and contractors regarding whether – and, if so, how – to apply this rule.

Finally, both parties may ultimately terminate the contract without any liability for either party if unforeseen circumstances equivalent to force majeure occur and are not rectified within a certain amount of time.

If variations or changes to a specified quantity in the construction agreement cause a substantial disruption of the conditions for the execution of the contract works, an adjustment to the agreed contract price or other remuneration model shall be made. Notifications and claims for compensation of substantially disrupted conditions must be made without delay and not later than six months after the approval of the total works; otherwise, they will be deemed forfeited.

Whether variations and/or changes to specific quantities are to be deemed a disruption must be evaluated on a case-to-case basis and include an assessment of the nature and scope of the variations or change to quantities, the time consumed when executing them, and the effect that the variation or changes to quantities has had on the contract works in general.

During recent years, there has been a large number of disputes in Sweden where the contractor has invoked its right to a price adjustment on the basis of a substantial disruption. Empirically, the rate of success of these claims is fairly low. The reason for this is presumably the inherent difficulties of demonstrating the actual effect on the contractor’s cost calculation for the contract works as a result of a number of variations to the scope, as well as the uncertainty in relation to how to calculate a possible loss of production. In addition, the relevant provision in the AB Standards offers very little guidance as to the application of it with regard to when a substantial disruption should be deemed to exist, how the price should be adjusted, or the standard of evidence the contractor must consider when submitting its claim.

Swedish contract law is based on the principle of freedom of contract, entailing that two commercial parties may agree on whatever exclusions to either party’s liability as they please. There is no mandatory law that prohibits the parties from doing so. However, for B2C contracts, there are mandatory laws that prohibit limitations of liability beyond what is stipulated in such laws.

To the extent a limitation of one party’s liability may be held to be unreasonably burdensome for the other party, considering all relevant circumstances, the Contracts Act provides rules to ensure that such limitations may be modified or set aside in order to achieve a reasonable result. Of course, when a party has limited its liability fraudulently, or when the other party has agreed to the limitation under duress or similar, such limitation would not be enforceable.

The concepts of wilful misconduct and gross negligence exist under Swedish law. There are references to these concepts in Swedish legislation, such as the Sale of Goods Act.

The AB Standards deal with the concept of gross negligence to a small and precise extent, mainly implying that certain limitations of liability do not apply when gross negligence is at hand (see 9.2 Restricting Remedies and 9.3 Sole Remedy Clauses).

In line with the principle of freedom of contract, parties are free to agree on any limitations of liability. However, limitation of liability clauses can be set aside in the event of wilful misconduct or gross negligence, or if upholding the limitation of liability would be unreasonable.

The AB Standards do not include limitations of liability to a large extent. For damages explicitly referred to in the AB Standards, such as damages to the site or damages resulting from a defect (or damages to third-party property), the responsible party’s liability is in principle without limits. However, for certain types of damages, a party’s liability is limited to 15% of the contract sum. In addition, neither party is liable for loss due to interruption or disturbance in industrial production or other commercial activities.

As specifically regards consultancy agreements where ABK 09 has been incorporated, the consultant’s liability for damages is limited to an amount equivalent to 120 price base units (approximately USD600,000 in 2024), which corresponds to the consultant’s obligation to maintain insurance (see 7.3 Insurance).

The AB Standards do not include any contractual indemnification provisions and it is uncommon for the parties to agree on such provisions ‒ although there are no mandatory provisions preventing them for doing so (please refer to 6.1 Exclusion of Liability).

The guarantees typically utilised in Swedish construction contracts are predominantly in the form of bank or insurance guarantees or parent company guarantees.

Guarantees are not governed by statutory law; however, they are commonly employed in construction contracts, as the AB Standards contain a non-compulsory provision to furnish a guarantee. Regarding the contractor, the guarantee should amount to 10% of the contract sum throughout the construction period until approval of the total works ‒ following which, the guarantee shall be reduced to 5% of the contract sum for the first two years of the warranty period. This guarantee is intended to secure the correct completion of the contract works, or agreed remediation of defects, in cases of insolvency or disputes between the employer and the contractor.

Consultant Insurance Obligations

According to the AB Standards, the contractor is obligated to carry insurance that covers damages to the construction site. Additionally, the contractor must have a general liability insurance policy that remains valid throughout the construction period and for at least two years following its completion. In practice, all major insurance companies on the Swedish market offer a specific “construction policy” intended to meet the requirements as stipulated in the AB Standards and ‒ unless additional insurance requirements have been stipulated in an individual agreement – all contractors on the Swedish market will carry sufficient insurance.

Consultants are required to obtain professional indemnity insurance for an amount that corresponds to the agreed-upon liability for damages. This insurance must be kept in force throughout the entire liability period. As with the construction policies, all insurance companies offer consultancy policies that meet the requirements of the AB Standard for consultancy services, ABK 09.

According to the AB Standards, both parties are entitled to terminate the agreement concerning the remaining parts if the other party becomes bankrupt or otherwise insolvent. In addition, the contractor has the right to terminate or suspend the works if the employer fails to fulfil its obligation to pay for works performed or otherwise fails to discharge their obligations.

Provisions on risk sharing are not commonly included in Swedish standard construction agreements. As a general rule, the parties are responsible for risks within their control. By way of example, in AB 04 contracts, the employer is responsible for the design of the works, whereas the contractor is responsible for performing the works in accordance with the agreement and design.

However, stronger elements of risk sharing can be observed in partnering construction contracts, where the employer and the contractor typically co-operate to a greater extent, often working in joint teams. One way the parties usually share risk for cost increases in partnering projects is by agreeing on remuneration based on an incentive model where the contractor would be allowed to share savings in relation to an agreed “budget price” ‒ whereas, in the event of cost increases beyond the budget price, the contractor would have to carry a part of such cost increase itself. However, given that there is no standard agreement specifically tailored to partnering agreements, the extent of shared risks can vary significantly depending on the terms agreed upon in the particular contract. As a ground rule, the parties would be wise to be extra careful when allocating the risk between them in partnering contracts, as this may otherwise lead to the risk of disagreements.

In the AB Standards, the parties are responsible for any damages caused by their personnel.

If the execution of the total works should be jeopardised because the contractor fails to fulfil its obligation to its employees, the employer of the construction is entitled to discharge the obligations on behalf of the contractor and at the contractor’s expense and risk.

Unless explicitly agreed otherwise, the contractor is entitled to engage subcontractors to perform parts of the work, or even all the total works. Both parties are liable for any actions or omissions of their respective subcontractors. The same principles apply to subconsultants under ABK 09. Please see 2.3 The Subcontractors.

Intellectual Property in AB Standards

The AB Standards do not encompass extensive regulations concerning IP rights. However, they do contain provisions aimed at protecting a tenderer during the tender phase. These provisions primarily ensure that information submitted in a tender cannot be utilised by the recipient without the consent of the submitting party.

Intellectual Property in Standard Consultancy Agreements

In contrast, the regulation of IP rights assumes a more central role in standard consultancy agreements. This focus is understandable given the nature of the consultancy work, which typically revolves around the consultant’s responsibility to deliver construction design.

Central provisions normally include that the client is only entitled to use the result of the assignment for the intended purpose. Thereto, the client shall safeguard the results of the assignment from unauthorised copying and distribution and may not transfer any rights to a third party unless the consultant has received payment in conformity with the contract or acceptable security has been provided. As regards inventions resulting from the assignment, the client is entitled to full or partial participation as a rights-holder with regard to the invention, in some cases against reasonable compensation.

General

As a general rule, a party invoking legal remedies has a duty to notify the other party without delay or, in certain cases, within fixed deadlines. The duty to notify applies as a general principle of contract under Swedish contract law, and the AB Standards include specific fixed deadlines depending on the situation at hand. During recent years, the Supreme Court has in several cases ruled that the consequence of a party’s omission to notify without undue delay is generally forfeiture of the claim for which notices have not been given on time.

The remedy available in the event of breach of contract depends on what the breach relates to and the severity of the breach. Typical breaches of contract relate to delay and defects, for which the AB Standards provide remedies. Further, the AB Standards provide that a party is entitled to hold the other party liable for damages suffered due to the other party’s breach of contract, or as a result of a defect for which the contractor is liable.

Employer

In the event of delay, the most common remedy available to the employer is liquidated damages (see 5.3 Remedies in the Event of Delays).

Concerning defects, the contractor has both a duty and a right to rectify defects noted in the protocol from the final inspection or as otherwise notified by the employer. Should the contractor fail to rectify the defects within the prescribed time or declare that it does not intend to rectify the defect, the employer may have the defect rectified. If the contractor is responsible for the defect, the contractor is liable for the cost of rectification.

Contractor

If the contractor is entitled to terminate the contract – for instance, owing to the employer’s failure to provide payment in due time – the contractor may instead choose to suspend the works in order to apply pressure on the employer. However, such suspension may however not be longer than one month ‒ after which, the contractor must either recommence its works or terminate the contract.

It is not uncommon that parties contractually limit the remedies available in the event of breach of contract, typically in the form of a restriction on the maximum amount of liquidated damages or other damages payable in in the event of breach of contract.

Generally, Swedish courts or tribunals will uphold limitation of liability clauses. However, according to general principles of law, such limitations may be set aside in cases of wilful misconduct or gross negligence or by application of Section 36 of the Swedish Contracts Act regarding setting aside unreasonable contract provisions (please also refer to 6.2 Wilful Misconduct and Gross Negligence).

Sole remedy clauses are generally not used in Swedish construction contracts. However, if the parties have agreed upon liquidated damages for delay, the employer is not entitled to claim additional damages due to the delay, unless explicitly agreed otherwise. In such case, liquidated damages are the exclusive remedy for the delay.

According to the principle of freedom of contract, Swedish courts and tribunals will generally uphold sole remedy clauses. However, such clauses could be set aside in cases of wilful misconduct or gross negligence or by application of Section 36 of the Swedish Contracts Act regarding setting aside unreasonable contract provisions.

In general, the AB Standards do not exclude certain damages from liability. However, as specifically regards loss due to interruption or disturbance in industrial production or other commercial activities, the AB Standards include a general exclusion of liability for such loss. In principle, this is very similar to a general exclusion of liability for indirect or consequential loss.

Retention

During the contract works, the employer is entitled to retain 10% on each invoice for works performed (albeit not more than 5% of the contract sum) as security for the rectification of defects. After the approval of the works, the employer is entitled to retain 5% of the contract sum for up to two months following approval of the total works as security for rectification of defects as noted in the minutes from the final inspection. In addition, the employer is entitled to retain a reasonable amount relating to other claims pertaining to, for example, defects, liquidated damages and other damages.

Suspension

As explained in 9.2 Restricting Remedies, the AB Standards entail that the contractor is entitled to suspend the works if the contractor is entitled to terminate the contract.

The employer has a general right to suspend the works, or even discontinue the project in total (see 9.6 Termination for more detail), at the employer’s discretion. Should the employer suspend the project for a certain period, the contractor is entitled to extension of time as needed once the employer instructs to recommence the project, as well as compensation for all costs incurred as a result of the suspension.

Both parties are entitled to terminate the contract if specific circumstances apply. Primarily, such circumstances relate to the other party’s failure to provide adequate security, changes in the financial status of the other party, or where the works are severely disrupted. In addition, the employer is entitled to terminate the contract in the event of severe delay, whereas the contractor has an equivalent right if the employer fails to make payment in due time.

As regards construction contracts publicly procured, it is mandatory to incorporate supplementary termination clauses for the employer, specifically pertaining to adherence to employment and social responsibility standards, compliance with public procurement laws, and the prohibition of unauthorised alterations to the contract.

Both parties are entitled to claim damages for any loss suffered as a result of the termination.

In addition to the right to terminate, the employer has an unconditional right to discontinue the entire project for convenience. If this situation occurs, the AB Standards include provisions to compensate the contractor for its loss of revenue and profit for the part of the works discontinued.

According to the AB Standards, disputes shall be settled in the general courts unless the amount in dispute obviously exceeds 150 price base amounts (which, for 2024, corresponds to approximately SEK8.5 million) – in which case, the dispute must be settled by arbitration in accordance with the Swedish Arbitration Act. Parties would normally be wise to amend this provision by agreeing that disputes that must be settled by arbitration shall be settled by arbitration according to an appropriate arbitration institute, which on the Swedish market is the SCC Institute (formally the Arbitration Institute of the Stockholm Chamber of Commerce).

In addition to the dispute resolution clause, the AB Standards also include the option to use a simplified disputes resolution procedure, which entails that the parties ‒ by agreement following the occurrence of a dispute – may submit their dispute to a competent and unchallengeable sole “arbitrator” (although this should not be confused with actual arbitration). Such simplified dispute resolution adjudication is subject to agreement between the parties once the dispute has occurred; however, if utilised, it provides a swift and cheap way of resolving smaller and non-complex disputes.

Mediation is quite commonly utilised and often such mediation is conducted according to the SCC Institute’s Rules for Mediation ‒ normally as a part of a combination arbitration clause where mediation is provided as the first choice for dispute resolution, followed by arbitration if mediation is unsuccessful.