FIDIC Contracts: Law and Practice


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Generally, these legal disputes took years to decide before a binding judgment was eventually handed down by the courts. The scope of the 4 See e. The Act states that contractual clauses that exclude or restrict the powers or procedures of the EBPC or which attach any negative, legal, consequence to initiating EBPC procedures are null and void.

Therefore, if the construction project is implemented in the territory of Hungary, we are faced with a mandatory provision of Hungarian law that cannot be bypassed even if choosing the law of another country. However, the EBPC does not have jurisdiction over all legal disputes in the construction sector. Its jurisdiction only applies: a to those cases in connection with the performance of construction contracts when no performance certificate is issued; b where the issuance of a performance certificate is disputed; c payment is not made despite being due; as well as d to those cases when the ancillary obligations to guarantee the contract bank guarantee, lien, surety and their enforcement are disputed by the parties.

It is to be emphasised that the ex officio procedure of the EBPC is not mandatory and can be initiated upon request of one of the parties. The Act grants priority and summary procedure to the parties involved in court litigation where they have attempted to use the EBPC.

The EBPC comprises of independent court experts and must deliver its expert opinion in 30 days from the date of receipt of the application. The party that disagrees with the expert opinion can start litigation within 60 days from the date of its receipt and the court is obliged to handle all such cases with priority in a summary procedure. The amended Code of Civil Procedure provides a number of guarantee provisions and preferential treatment to the party which sustained injury according to the expert opinion for example, judicial protective measures and prior enforceability.

This procedure is particularly advantageous to the contractor if the employer disputes performance or certain aspects of performance stated in the contract. Provided that EBPC review is allowed, the contractor will probably decide against using arbitration. The other special bodies created to decide legal disputes are the concilia- tion boards attached to the regional Chambers of Industry and Trade.

This institution enforces consumer protection regulation in Hungary and its functions are accessible to the consumer. The new definition covers not only natural persons acting to promote objectives out- side the scope of their independent professions and activities but, among other things, micro, small and medium-sized enterprises in the European sense. It is further possible — even in this case — for the entity subject to the complaint to start litigation i.

Construction Law (FIDIC Contract Law)

Where the terms and conditions of the FIDIC contract are used in Hungary, the contract must contain the rules for deciding legal disputes in accordance with the relevant contract templates. Failing that — and if the competent court and the applicable law are not specified — the registered office of the Hungarian company subject to litigation in Hungary or the site of the construction project in Hungary may lay the foundation for deter- mining the jurisdiction of the Hungarian court see also Chapter 20 of the FIDIC Red and Yellow Books.

These provisions cannot be disregarded when applying Hungarian law Construction Act, section 43 1 — even if FIDIC contract terms and conditions are used. In general, there is no problem in implementing particular FIDIC sub-clauses in relation to the following provisions of Hungarian law.

Pt 2] Fidic Contracts and Hungarian Law The designer is responsible for the suitability of the technical content of the drawings and specifications made by it so that their content is in line with actual status , the selection of the sector-specific designers and coordinating conciliation among them and the quality of the architectural work Construction Act, section 33 1. According to the rules governing warranties for the transfer of title specified in Act IV of on the Hungarian Civil Code hereinafter: the Hungarian Civil Code , the designer warrants that no third person has any right to hinder or restrict the implementation of the drawings and specifications.

The contractor is responsible for their own competency, for the legitimate conduct of the construction project, for maintaining the construction log and for compliance with the content of the construction designs. The contractor is responsible for all legal consequences arising from its failure to indicate deficiencies in the drawings or specifications of which they were aware before entering into the construction contract Construction Act, section 40 1 ; also see clauses 2.

A brief introduction to FIDIC contracts

In practice, the mechanism most frequently used to ensure performance by the contractor is the penalty regulated by the Hungarian Civil Code. According to Hungarian law, a penalty can be stipulated in writing for contract violation such as delay, faulty performance or actionable non- performance of the contract. Under Hungarian law, a penalty has the character of flat-rate compensation.

Thus, in each specific case, it has to be determined whether an actionable contract violation has taken place.


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The actual extent of damage sustained is not examined and Hungarian courts may reduce the rate of the penalty stipulated if it is considered excessive. Under Hungarian law, damages in excess of the penalty can also be enforced. However, in this case, the quantum of damages must be confirmed by itemisation and total to a specific amount.

In a certain sense, the guarantee undertaken by the contractor in the contract prescribed under separate law in certain cases or the mandatory guarantee already referred to can be regarded as contractual collateral. In the practice, if the employer does not have these funds, the contractor is not obliged to start building operations.

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Nevertheless, if the employer decides to start building operations at their own risk, the contractor can commence as well even if the financial funds are not available. A primary lien, bank guarantee or surety may be used as guarantees instead. In accordance with the rules of Hungarian law, the collateral manager is an independent person overseeing the funding of building construction.

The parties must place the financial funds of building construction into the bank account of the collateral manager. In accordance with Hungarian Law, the value limit of the building investments must exceed five million euros for the collateral manager to be required. If a building investment exceeds this limit, assignment of the collateral manager is obligatory. The contractor is not obliged to start construction if the employer does not provide security according to the above provisions.

In this case, the contractor may also terminate the contract referring to clause Employers from the public and the private sector are subject to the same provisions. When using FIDIC contracts, the parties have no fundamental obligation to assume an ancillary obligation if performance falls through. A separate agreement has to be reached in every case about the collateral. Interpretation of the collateral actually specified depends to a great extent on the provisions of the law chosen. We wish to mention that the choice of law may have significance from a special Hungarian perspective if Hungarian law and Hungarian courts are chosen.

Although the terms and conditions of the FIDIC contracts include that commitments predominantly of a bank guarantee character must be assessed according to the governing law of the contract, the bank guarantee may be considered on the basis of a law other than the law governing the other provisions of the contract. These are of decisive importance for regulating construction activities. This Decree is, in fact, an administrative decree because the regulations under administrative law are binding to all legal entities.

If these rules were prescribed by the Hungarian Civil Code, the parties could deviate from these rules by contract. The Hungarian Civil Code obliges the contractor to perform extra work, without which, the facility would not otherwise function properly. In case of a fixed price contract, the contractor cannot demand any extra payment for extra work, but can do so if payment is by measure and value.

The Decree obliges the parties concluding a contract for construction activities to regulate the method of settling payment for additional work in the contract that may become necessary at a later date. As a general rule, in the case of additional work, the parties are free to agree under Hungarian law whether the employer orders the additional work. The engineer has a leading role in determining to what extent they deviate from the original contract or the drawings and specifications and how related financial issues are settled.

Naturally, this kind of conciliation exists in Hungarian practice also but, as discussed above, Hungarian law sets greater limits on the room for manoeuvring for the Parties relative to the terms and conditions set out in FIDIC contracts. This is despite the fact that the provisions of the Decree are mandatory and any deviations from them deemed null and void where Hungarian law is the governing law. It is necessary to highlight that these are mandatory provisions of Hungarian law which prevail in any case when Hungarian law is applicable — even if the parties agree differently in their contract.

We emphasise that under Hungarian law, taking over is always preceded by a joint site inspection. At the inspection, the technical manager of the contractor hands over the taking over certificate to the employer or their technical inspector or the technical manager of the general contractor which includes the activities to be carried out by the contractor. One of the binding rules of Hungarian Law is the Performance Certificate that must be issued in electronic form.

On the basis of the taking over certificate and the related inspection, the employer or their technical inspector or the responsible technical inspector of the general contractor issues a Performance Certificate for the construction activities to be done.

Introduction to FIDIC Contracts Courses & dispute avoidance

This includes their extent, quantity and quality and an estimate of the amount due to the contractor. The construction supervisory authority and others must be notified of this. We note that according to the Hungarian Civil Code, taking over cannot be denied due to insignificant defects and deficiencies of service. According to the provisions of Hungarian law, performance has to be inspected within the framework of a follow-up supervisory procedure one year from the date of the taking over procedure see also clauses 4.

Despite being familiar with the legal principle of force majeure, Hungarian law does not go into any detail and provides no definition. It follows from the above that detailed provisions of FIDIC contracts concerning force majeure are in harmony with Hungarian law and set out the details of force majeure with respect to the given contract.

These rules can be applied under Hungarian law. At the same time, certain mandatory provisions of Hungarian law should be taken into consideration, although similar provisions can also be found in the terms and conditions of FIDIC contracts. According to Hungarian law, contractual provisions are null and void if they wilfully exclude or restrict liability for defective performance caused by gross negligence, criminality, or where harm was done to life, body or health. In connection with defective performance, the concepts of warranty and guarantee need to be discussed as these terms are clearly separated in Hungarian law and in judicial practice — particularly in relation to liability for latent defects.

FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice FIDIC Contracts: Law and Practice
FIDIC Contracts: Law and Practice

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