The main source of private law governing the construction market in the Netherlands is the Dutch Civil Code or DCC (Burgerlijk Wetboek), in particular, books 3, 5, 6 and 7. Specifically, title 12 of book 7 contains statutory provisions regarding construction (aanneming van werk). These can be found at https://wetten.overheid.nl.
Public laws which govern the construction market are the Environmental Permitting General Provision (Wet algemene bepalingen omgevingsrecht) and the Environment Act (Omgevingswet).
The Procurement Statute (Aanbestedingswet) regulates procurement proceedings.
Four sets of standard conditions are most generally used for contracts relating to construction works, namely: UAV 2012, UAV-GC 2005, DNR 2011 and FIDIC. UAV 2012 is a traditional construction contract, UAV-GC 2005 is a design-and-build contract (with the additional option of maintenance), DNR 2011 is a design/consultancy contract, and FIDIC contracts cover most building organisation methods.
In traditional contracts, the design responsibility rests with the employer and the construction process rests with the contractor. In integrated contracts (geïntegreerde contracten) the design responsibility is also part of the contractor's responsibility, the extent of which depends on the contract. The most common contractual conditions are discussed below.
These conditions are commonly used for an employer-contractor contractual relationship. They are typically used in traditional construction contracts, in which the employer is responsible for the design and specifications of the works, and the contractor is responsible for the execution of the works in conformity with the specifications.
These conditions are commonly used for an employer-contractor contractual relationship in a design-and-build project. They are used in integrated contracts. The contractor is partly (or almost fully) responsible for the design of the works in accordance with the programme of requirements provided by the employer.
These conditions are commonly used in contractor-designer/consultant or employer-designer/consultant contractual relationships. Most architects, engineers and consultants in the Netherlands work within the DNR 2011 conditions. These conditions govern the responsibility and liability of designers/consultants.
These conditions are commonly used in an employer-contractor contractual relationship. There are varying types of FIDIC contracts and which FIDIC contract the parties choose will depend on the scope of the work and the risk allocation in the project. The FIDIC red book is typically applicable in works in which the employer carries out the design and the contractor carries out the works; the FIDIC yellow book applies in works in which the contractor designs and executes the works; and the FIDIC silver book is used in so-called "turnkey" contracts.
Please note that the use of these standard contracts, although common, is not mandatory in the Netherlands, although it is a policy of the state authorities to use the UAV 2012 for traditional construction contracts and the UAV-GC 2005 for design-and-build contracts.
The construction market seems to have been relatively unaffected by the COVID-19 pandemic. Due to quick legislation between the market branch and the Dutch government, construction works have continued throughout the national lockdown measures. However, contractors claim to have suffered delays and extra costs as a result of the pandemic and the lockdown measures.
In construction projects, the employer is typically either a private company or a Dutch governmental branch. It should be appreciated that the general rights and obligations of the employer in construction contracts strongly depend on the contract between the parties. In traditional contracts (under the UAV 2012 conditions), the employer is responsible for the design, the permits and the soil. In general, the employer arranges the financing of the project. Alternatively, it can happen that the contractor is tasked with arranging the financing of the project (see 2.2 The Contractor).
The contractor is responsible for the construction of the works. In integrated contracts, the contractor is also responsible for the construction and, additionally, for (part of) the design. The contractor can also be responsible for the maintenance of the works after delivery. In some cases, the contractor may be tasked with arranging finance for the project, in which case, general project finance will be used, where the contractor attracts financing from lenders on a limited or non-recourse basis. Generally, the contractor corresponds with and co-ordinates the subcontractors. The contractor also corresponds with and reports to the employer.
In large construction projects in the Netherlands, the contractors of projects are typically one of the large national private construction companies (Koninklijke BAM Groep, Volkerwessels, Koninklijke Boskalis, Strukton, TBI Holdings or Dura Vermeer) or international private companies (Denys, Fluor, Besix and Strabag). To distribute risks, these construction companies (or their subsidiaries) typically form a consortium and create a partnership or SPV (special purpose vehicle) to carry out a project.
Private companies specialised in a particular discipline often act as subcontractors in construction projects. Generally speaking, the (main) contractor is responsible for co-ordination between the subcontractors and their respective scopes of work.
Typically, national banks such as ABN Amro, ING and Rabobank, and international banks finance construction projects in the Netherlands. It is also possible that other lenders, such as pension funds, can act as financiers. In the event of project finance, the lenders perform due diligence on the project and all contracts and permits regarding the project. A specific facility will be formed for the project on the basis of non-recourse or limited recourse financing.
The scope of work is generally laid out in a programme of requirements (programma van eisen). If the design has been completed by the employer and the scope of the construction contract is only the execution of the works, the scope of work is laid out in specifications (bestek). These documents are generally an annex to the construction contract.
Generally speaking, the scope and price for variations is subject to negotiation between the employer and the contractor, irrespective of which party initiated the variation. However, in a construction contract, the parties often agree beforehand on unit rates that will be applicable in case of future variations.
In some cases, the contractor is responsible for the design and the construction of the works. In other cases – and this is the traditional division – the employer is responsible for the design and the contractor is only responsible for the execution of the works (although part of the execution also often includes the so-called contractor's detail-engineering and/or shop drawings). Alternatively, the contractor may be responsible for the design and construction as well as other functions, such as maintenance, operation and financing of the project.
In general, the contractor in all cases is responsible for the execution of the works. The contractor is allowed to assign parts of the works to subcontractors, but remains responsible for the works of these subcontractors vis-à-vis the employer and for the co-ordination of the subcontractors.
In general, the employer is responsible for the soil and the soil conditions, including underground obstacles and pollution. It is possible, however, that the parties agree otherwise in the contract.
For most activities with regard to building, renovation, demolishing, construction, the environment, nature and open spaces an "all-in-one permit for physical aspects" is required. This permit is attached to the project and is therefore applicable to anyone who carries out the project. The employer or the contractor can apply for this permit. In general, the employer is contractually responsible for the permit for the works. The contractor can be responsible for the permit for aspects specifically regarding the actual execution of the works.
In general, the employer is responsible for maintaining the works after delivery. However, maintenance contracts for certain parts of the works will typically be concluded with the parties that were involved in the construction of that part of the works. In some contracts, the so-called long-term maintenance of the works is already included in the construction contract.
It is possible that besides the construction function, the design function, the maintenance function, the operation or finance function are assigned to the contractor. It is also possible that only some of these functions are assigned to the contractor.
If required in the contract, the contractor is generally responsible for testing. General tests are carried out before and after completion. If not required in the contract, it is up to the employer to inspect and test the works.
In general, the contractor notifies the employer when the works will be completed and can be inspected for delivery. On the date of completion, the employer will inspect the works. If the employer approves the works, delivery and taking over of the works takes place, and the works will be for the risk of the employer. In general, the employer cannot withhold approval of the works if there are only minor defects that do not prevent the employer from using the works and that can be remedied within a reasonable time. These minor defects will be put on a "punch list".
The risk and responsibility of the works are usually for the employer after takeover. If after completion/takeover there are still defects, for instance, defects noted on the punch list or hidden defects that appear some time after takeover, the contractor is responsible for remedying these defects if the employer can prove that the contractor is liable for these defects. It is possible for the parties to agree on a defects liability period, after completion. During this defects liability period, the contractor is responsible for remedying these defects, except if the contractor can prove that they are not liable for these defects.
The contract price is usually a lump sum, subject to negotiation. Alternatively, the parties can agree on a unit rate contract or a reimbursable contract. The price for the unit rates and the reimbursable rates are subject to negotiation. The contract price in general contains the direct costs for the execution of the works, site costs, and a surcharge for insurance, general costs, profit and risk. Milestone payments are customarily used.
Interim payments for milestones are generally used. Lump-sum payments are also used and are generally payable after completion. In the event of late payment, the employer shall have to pay interest to the contractor. Very late or structural late payment can constitute a default or breach of contract, allowing the contractor to dissolve the contract and claim damages.
In general, the contractor sends invoices to the employer. These are usually payable after a period of approximately 30 days.
Parties usually agree to a commencement date and a fixed (ultimate) completion date. Sometimes there are also milestone dates, by which the works must have progressed to a specific stage. It is also possible that the time within which the works have to be completed is expressed as a number of "workable working days", calendar days, weeks or months. In general, the contractor is free to make the planning/time schedule for the execution of the works, as long as this time schedule conforms with the (milestone) dates and times in the agreement. The time schedule is safeguarded by monitoring the progress of the works, linking (interim) payments with progress achieved and setting penalties for missed milestone dates. Providing certificates when milestones have been reached is common.
In case of delay of the works, the parties usually discuss and agree on the contractor taking acceleration measures. The costs of acceleration measures are usually borne by the party that is responsible for the delay. The law and the standard forms UAV 2012 and UAV-GC 2005 do not contain specific provisions on acceleration measures. However, a contractor that has caused delay can be forced in court to provide for a timely delivery of the works according to the contract, thus factually forcing the contractor to accelerate. If the delay is caused by the employer, the contractor cannot be forced to accelerate, unless this is agreed in the contract.
In case of delays of the works caused by the contractor, the remedies that are available to the employer usually include penalties, the postponement of interim payments and, if it is clear that the contractor will not deliver the works in time, dissolving the contract. If the only possible outcome is that the contractor will not deliver the works in time, dissolving the contract can only be done by the courts.
The law does not contain provisions on extension of time. The standard forms UAV 2012 and UAV-GC 2005 do contain provisions, however, stating that the contractor is entitled to an extension of time in certain cases. The typical manner for the contractor to request an extension of time would be a written request to the employer, stating the cause for the delay and invoking the applicable contractual right to an extension of time.
Contracts generally contain a force majeure clause, stating that in extraordinary events that are beyond the parties’ control, the contractor and the employer cannot be bound by the contract and/or are not liable for damages. The most common events mentioned in these clauses are, amongst others, war, rebellion, riot and natural catastrophes. In case of force majeure events, the contractor is usually entitled to an extension of time.
Unforeseen circumstances are regulated by mandatory law. If circumstances occur and the parties have not provided for the occurrence of these circumstances in the contract, the law provides for the possibility that the contract can be amended or dissolved by the court. Also, the standard forms UAV 2012, UAV-GC 2005 and DNR 2011 contain clauses relating to unforeseen circumstances.
Under Dutch law, the exclusion of liability is allowed. However, the liability for wilful misconduct (opzet) and gross negligence (bewuste roekeloosheid) cannot be excluded. Furthermore and as a general rule, an exclusion of liability cannot be invoked if this, under the given circumstances, would be unacceptable according to the standards of reasonableness and fairness.
Under Dutch law the concepts of wilful misconduct and gross negligence exist. Liability for wilful misconduct (opzet) and gross negligence (bewuste roekeloosheid) cannot, therefore, be contractually excluded under Dutch law.
Under Dutch law, parties are allowed to contractually limit their liability. However, the standard form UAV 2012 does not contain any limitations of liability, except for a limitation in time for hidden defects. The standard form UAV-GC 2005 contains a limitation of liability for hidden defects of 10% of the contract price. If limitations of liability are agreed in a construction contract, these limitations often exclude the liability for indirect or consequential damages and limit the contractor's liability to a percentage of the contract sum.
Indemnities are generally used to limit risk in the Netherlands and it is common for one party to indemnify another against claims resulting from a breach of contract by the first party. If the employer is responsible for the design, it is common for the employer to indemnify the contractor for claims arising from the design. It is also common for the employer to indemnify the contractor against claims resulting from the contractor’s compliance with the employer’s requirements. It is common for the contractor to indemnify the employer against claims resulting from the execution of the works or negligence.
It is common for the contractor to guarantee the performance of works for a certain period of time. It is also common to agree upon a defects liability period during which the contractor is obliged to remedy all defects in the works.
The contractor is usually obliged to insure the works completely.
One party is usually able to terminate the contract in the event of insolvency of the other party.
It is possible that parties can be jointly responsible for certain risks in a construction contract. This is the case in partnering and alliancing contracts. The use of these types of contracts is not common, however.
In general, the employer’s and the contractor’s personnel are described in the construction contract. Key personnel on both sides, if any, are selected. Specific obligations and instructions can be assigned to the personnel.
The possibility of subcontracting can be regulated or limited in a construction contract. However, in general, subcontracting is permitted.
Intellectual property, patents, copyrights, trade marks and industrial properties are generally regulated, in the sense that the parties determine which party holds these rights. It is possible for one party to indemnify another party against a third-party claim alleging infringement of one of these rights.
In the event of a breach of the construction contract by the employer, the contractor is entitled to:
In the event of a breach of the contract by the contractor, the employer is entitled to:
The party concerned is generally required to send a notice of default before claiming damages and terminating the contract.
It is not common practice to contractually limit the remedies available to a party, except for retention rights which are more frequently limited. It is possible to contractually limit suspension rights and the right to terminate the agreement.
Except for offshore and industry construction contracts, sole remedy clauses are not typically used in construction contracts.
Except for offshore and industry construction contracts, in general, the liability of parties in construction contracts is not limited. According to the DCC, damages that are attributable to breach of contract are eligible for reimbursement. Sometimes, specific forms of damages like indirect and consequential damages are excluded. These terms are not defined in the DCC and must be interpreted by the judge/arbitrators. In case of a contractual penalty on late delivery, this qualifies as a fixed compensation, unless the parties explicitly agree otherwise.
Retention and suspension rights are not generally excluded. Sometimes, retention rights are excluded to the extent that the employer has not paid the undisputed invoices.
The district courts have jurisdiction in construction cases. The courts in the Netherlands have three tiers, as follows:
An important alternative means of dispute resolution is arbitration before the Netherlands Arbitration Institute (Nederlands Arbitrage Instituut) or the Board of Arbitration in Construction Disputes (Raad van Arbitrage in Bouwgeschillen). An agreement for arbitration is necessary. Furthermore, parties can agree on dispute resolution by means of binding or non-binding advice or mediation.
After seemingly having weathered recent developments – such as COVID-19 and the nitrogen crisis – relatively well, the Dutch construction industry has been hit hard by the combined effects of the war in Ukraine and inflationary trends. At this moment, pressing issues are the recent steep rise of costs of building materials and, especially, the energy crisis and shortages of skilled personnel. Simultaneously, we are witnessing rising interest rates and falling yields. These effects put pressure on the construction sector as a whole.
On a positive note, we are witnessing the rise of industrialisation of building processes, such as prefabricated building, just-in-time delivery via building hubs and digital design and production. Moreover, mining of big data seems to offer promising new business models for the industry.
War in Ukraine
The effects of the war in Ukraine and the already nascent inflationary trends have proven to be a rather toxic cocktail for most of the Dutch construction industry sector. Prices for construction materials – such as steel, lumber, copper and prefabricated elements – were already on the rise for some time and the war in Ukraine greatly exacerbated these trends. Since March 2022, prices for steel have to be negotiated on a daily basis. Fixed-price contracts for sizeable projects are nigh impossible. Steel and wood from Russia and cement from Belarus have to be imported from elsewhere. The loss of the labour force from Ukraine is also taking effect, eg for the offshore industry. The impacts of COVID-19 are also being felt, while personnel, especially skilled personnel, were already hard to find.
So far, legal remedies for existing contracts have been small comfort for contractors. As in other jurisdictions, Dutch law and standard conditions offer only very limited openings for passing-through of price rises. Only in extreme and unforeseen circumstances does the law and standard conditions provide for compensation, only helping extreme price effects that occurred immediately after the war in Ukraine had started. Otherwise, suspension of time is the best contractors can hope for.
For new contracts, parties are frantically searching for, and negotiating, remedies. In the Netherlands, contractors may be helped by the present market circumstances, which seem to benefit them against employers, as it is a "sellers’ market". There are no one-size-fits-all solutions, however, and each sizeable project has to be negotiated on its own merits.
Added to that, the so-called nitrogen crisis keeps casting a shadow over the Dutch construction sector.
At the end of May 2019, the infrastructure and real estate sectors were startled by a decision by the highest administrative court in the Netherlands, the Council of State (Raad van State), ruling as illegal the existing practice of environmental permits for projects. All permits for new infrastructure and real estate projects since then have largely ground to a halt; permits already granted run the risk of injunction procedures.
The established practice of regulating the effects of nitrogen deposition on so-called Natura 2000 areas (mainly natural parks) was deemed insufficient and in violation of EC law. State legislators have been grappling with this issue since, and a viable solution has not been found to date.
In the course of 2020, some creative workarounds were introduced and the issue seemed manageable for smaller and inner-city real estate projects. However, for larger greenfield developments, including logistics developments, a structural solution still had to be found.
Meanwhile, the conclusion must be that courts have been very strict and that most workarounds have so far been effectively ‘killed’ in court. Furthermore, it should be noted that the effects on the construction sector as a whole are not entirely visible yet; a large part of work in progress has been permitted before the nitrogen ruling occurred. The real effect may only be felt in the coming years, when order portfolios will be drying up.
The era of cheap money and low interest rates seems to be coming to an end. This will have a marked effect on investors’ appetite for development projects, especially in the residential and commercial sectors. This combination of falling yields and rising costs of construction already leads to projects being temporised, mothballed or cancelled altogether.
Industrialisation and Digitalisation of Building Processes and Big Data
To end on a positive note, we continue to see a rapid development of industrial and digital processes taking a firm hold on the Dutch construction sector. All large Dutch construction companies presently have their own factory-produced houses. Some of these can be assembled in one day. Consumers can submit their preferences virtually by laptop, including the tiniest details. This process is still suffering from some growing pains, but quality is improving fast and traditional building techniques are rapidly becoming something of the past.
In design processes, digital solutions have become standard. In The Netherlands, intensive use is made of BIM (Building Information Modelling), a computer model enabling fully digitalised 3D design of existing and new buildings.
We are presently seeing the introduction of so-called building-hubs: semi-permanent assembly and storage yards on the outskirts of or in the vicinity of big cities; from these hubs, building materials and components are being transported "just-in-time" via zero-carbon electrical vehicles.
The latest development is that large infrastructure companies, as well as real estate constructors, are exploring the possibilities of mining big data, supplied by interactive traffic and asset monitoring sensors, via the expanding 5G network. Today, it is already possible to lower the entire nitrogen level in a city by connecting measurement data to traffic management installations in order to reroute traffic in the most environmentally effective way.
The outlook for the Dutch construction sector is momentarily insecure. While all long-term trends – climate transition, demand for affordable housing, overhaul of older infrastructure – drive demand and innovation, short-term circumstances are bleak. Substantial and sustained rise of prices of materials and labour, combined with rising interest rates and falling yields, topped off by as-yet unsoluble regulatory constraints (nitrogen), all conspire to cause sombre outlooks for the coming year or two. We expect to see a shake-out in the construction sector, leaving only the most innovative, diversified and financially robust players standing.