The main sources of law that govern and regulate contracts for the design or carrying out of building works are the different standard form contracts (the so called NS contracts) agreed and developed by contractors and builders in collaboration. Different standard form contracts apply depending on the type of work being undertaken. For instance, the standard form contract NS 8405 is designed for a contractual relationship in which one party (the contractor) agrees to undertake building or civil engineering work for another party (the client), where most of the drawings, descriptions and calculations are to be provided by the client. The standard form contract NS 8407, on the other hand, is a classic design and build (D&B) contract.
Most of the standard form contracts have been interpreted by legal theory and case law and is therefore supplemented by these sources of law.
In addition, the Planning and Building Act of 2008 (Plan- og bygningsloven) ,and its related regulations, lays down formal standards which apply to construction projects eg standards for building safety, aesthetics, and functionality.
Last modified 7 Oct 2024
Most construction work requires a specific permission from the relevant building authorities before the work can be started.
This applies to works such as the erection of buildings, extensions to existing buildings, significant alterations to the facade, major changes or repairs to existing buildings and constructions and demolition. Smaller projects are often exempt from the duty to obtain a specific permission although they must still be carried out legally and in accordance with the Planning and Building Act, derivative regulations and the applicable zoning plan.
For larger building projects the building permission is normally obtained in two stages. First, an application needs to be made for a general permission, before an application for a project start-up permission can be made (which provides the right to start the works).
The general permission is an "in principle" decision which gives the developer a conditional right to undertake the project described in the application. The general permission contains, amongst other things, the conditions which must be complied with in order to secure a project start-up permission. Under the general permission procedure, a review is undertaken of whether the project conforms with the planning regulations which apply to that area, and also, whether the project complies with the planning and building legislation requirements for such a project. Possible neighbours'/adjoining owners' considerations will also be reviewed at this point.
The next stage following the granting of the general permission is the project start-up permission. Before a project start-up permission is granted, the building authorities must also approve the developer's co-workers who will be responsible for the different sections of the work.
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Health and safety measures on construction sites are regulated by the Working Environment Act of 2005 (Arbeidsmiljøloven) and its associated regulations.
The most important provisions affecting the Norwegian construction industry, in respect of health and safety, are the regulations commonly referred to as ‘the Builder Regulation’ of 2009 (byggherreforskriften). These regulations are based on the European Council Directive 92/57/EEC on minimum safety and health requirements at temporary or mobile work sites.
The Builder Regulations of 2009 require that a written health, safety and working environment plan is created before the project is started and kept until six months after the work is completed. The plan is custom made for each particular project and must be easily accessible and made available to the workers at all times. This plan needs to set out the arrangements for the project, taking into account the potential risks to health and safety.
If the work is expected to exceed 15 days in duration or if the level of work is expected to exceed 250 man-days, the builder is required to give prior notice to the Norwegian Labour Inspection Authority. This notice must be sent at least one week before the work starts.
When there are several different elements of work on the construction site (whether they take place at the same time or successively), the client must appoint a ‘Health and Safety co-ordinator’. The Health and Safety co-ordinator’s role is to co-ordinate the project so that regulations on health and safety are followed, including the health and safety plan. In addition, the Health and Safety co-ordinator must constantly update a list of every person who is carrying out work at the construction site.
Negligent or intentional breach of the Builder Regulation will give rise to criminal liability.
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Norway has some of the strictest technical construction requirements in Europe.
The Planning and Building Act of 2008 and the Pollution Act of 1981, together with various regulations, contain provisions which aim to protect the environment. Protecting the environment is also enshrined in the Constitution.
These provisions contain requirements for buildings/construction projects and for products used in buildings/construction projects. The aim is to reduce pollution during the building phase and during the building's lifetime. For instance, requirements are set regarding the energy consumption and the environmental impact of the building materials used, the completed building's indoor environment, energy used during its lifetime and the impact on the external environment.
A breach of environmental regulations may give rise to criminal liability.
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The requirements with regard to infrastructure (for example roads and sewers), are found in the Planning and Building Act of 2008. The Act regulates both developers' and public authorities’ rights and obligations in respect of infrastructure arrangements.
The development of a site will be subject to requirements regarding access, water supply and the drainage system. The requirements are set out in chapter 18 of the Planning and Building Act of 2008 . Under section 18-1 of this Act, there is a requirement to create a public road and to install public water and drainage pipes in the immediate vicinity of the site. The road and pipes must meet the quality requirements set out in local regulations, the relevant zoning plan and the requirements set out in the Planning and Building Act. A certificate of completion or a provisional permission for the building is usually not granted before these requirements are met.
The Planning and Building Act states that the municipality is responsible for the upkeep of works relating to roads, water and drainage, once completed.
Private developers who have been required to construct a public road, public water system or drainage installations can require other landowners who benefit from the infrastructure project to contribute towards some of the cost of the works.
In large and complex projects, landowners or developers often enter into development agreements with the municipality. Such development agreements generally regulate the implementation and allocation of costs associated with major infrastructure projects. The agreements often replicate the requirements set out in the Planning and Building Act. In some cases, such an agreement may even be a pre-condition to securing permission to carry out the project.
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Norwegian contract law is based on the principle of contractual freedom. The principle provides the parties a right to agree and enter into contracts without mandatory governmental restrictions. However, when one of the parties to the contract is regarded as a non-professional or ‘a consumer’, some Acts contain mandatory provisions.
Certain provisions in the standard construction documents are incorporated as a result of statutes and case law.
From 24 April 2013 minimum wage rates for skilled and unskilled construction workers apply on construction sites. The minimum wage is mandatory in all construction projects. The regulation has been updated several times, with the latest version entering into force in December 2022.
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The private member organization Standard Norge, consisting of clients, contractors, governmental bodies etc. regularly produces and updates different standard form contracts.
International standard documents, including FIDIC, are seldom used.
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The main parties involved in a construction project are:
This is the party who procures the work (typically, a land owner or land developer). In relation to building contracts, this entity is usually referred to as the 'employer'. In relation to contracts of appointment of the professional consultants, this party is commonly referred to as the 'client'.
A main building contractor is engaged by the employer to carry out and complete the works. The contractor will usually, in turn, engage sub-contractors to carry out and complete separate parts of the works. Contactors may also take responsibility for the design of all or part of the works they are to execute, depending on the procurement method and/or contract used. The contractor is responsible to the employer.
A construction project often involves professional consultants. For example, engineers, architects, and project managers. The consultants are responsible to either the employer or the contractor, depending on who is responsible for the design.
This is the term used to describe the banks and other institutions and parties (for example, government or charitable organizations in the case of urban regeneration, infrastructure and cultural/sports projects) who provide finance to the employer to assist with the development (and who will require security in return). Depending on the size of the project, there may be a single bank or a syndicate of banks.
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Normally, the responsibility follows the function, meaning that the parties are responsible for their own duties. For example, the building contractor is responsible for the construction of the works, but not for the design (although, in design and build (D&B) contracts, the building contractor also takes on responsibility for the design of the works).
The client, in most situations, bears the risk in relation to unexpected ground conditions, unless the contract expressly states otherwise.
Force majeure is a recognized Norwegian legal concept in several different situations. It is however rare that a contractual party’s claim based on a force majeure incident is accepted. In Norwegian standard documents a claim for extension of time from the contractor is generally accepted where the delay is due to a force majeure event. However, a contract party is not entitled to claim compensation for additional costs which have arisen due to a force majeure event.
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The Government often pays private contractors to build roads, government offices, schools, hospitals and prisons out of tax revenues. A Public-Private Partnership (the Norwegian term for which is OPS) has however only been used in limited circumstances.
In 2015, the government launched a new platform for the transport sector. One aim with the reform was to expand the use of OPS agreements in road constructions. In their reform, the government instructed the Directorate of Public Roads to increase the use of OPS agreements in road projects. Following the reform, the Directorate of Public Roads has completed four OPS projects, in addition to two ongoing OPS projects.
At present, there is no Norwegian standard document that applies to OPS agreements. Normally, the employer and the contractor apply NS 8407, with necessary amendments and alterations.
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There are three main factors in a typical construction contract which provide for an alteration to the price. They are:
Whilst it is theoretically possible to draft a construction contract where the price is fixed (by omitting the three factors mentioned above), the commercial reality is that both the employer and the building contractor normally want some flexibility built into the contract: the employer usually wants to have the right to instruct variations and the contractor certainly wants the right to claim for losses suffered and expenses incurred for which it is not to blame.
In essence, what parties usually mean when they talk about a 'fixed price contract' is a lump sum contract where the contractor's entitlement to additional money is limited. For example, there are no fluctuation provisions and/or the events which would usually entitle the contractor to compensation for loss and/or expense are restricted. Parties may often refer to a 'guaranteed maximum price' contract which, again, is unlikely ever to truly mean this – employer changes and/or other possible occurrences will be excluded from the guaranteed maximum price figure.
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The parties are free, and often use this right, to agree upon insurances (both types and amounts).
Unless otherwise agreed, the standard documents often require the following insurances:
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In principle, the parties to a contract are free to agree whether security should be provided for the performance of their contractual obligations. The standard documents require both the contractor and the builder/client to provide security.
The standard form contracts do however require both the contractor and the builder/client to provide security.
The contractor must provide security for the performance of its contractual obligations during the construction period and the defects liability period. The amount varies between different standard documents, but is also subject to agreement between the parties. The security is often reduced after the contract work is taken over by the client during the defects liability period.
The client must also provide security for the fulfilment of its contractual obligations. The security covers claims in respect of the obligations to be performed by the contractor up to the time when the final invoice is received by the client from the contractor.
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The three main types of payment are:
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Construction contracts normally require the works to be completed by a specific date. Instead of the employer bringing a claim for general damages (compensation) for late completion of the works by the contractor, it is standard for the contractor to be required to pay daily penalties.
Daily penalties are damages that are fixed and the amount is agreed by the parties in advance. A typical clause requires the contractor to pay 0,1% of the total contract price for each day of delay up to the completion of the works.
The contractor’s total liability to pay daily penalties is often limited to 10% of the contract sum. This limitation of liability does not apply if the delay was caused by wilful intent or gross negligence on the part of the contractor.
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Contractual mechanisms for dealing with variations to the works vary depending on the reasons for the requested variation:
Under most standard-form contracts, the employer has the right to ask for variations of the works, for which the building contractor is entitled to an extension of time and compensation for extra costs. However, there is normally a limit to the scope of variations the employer is entitled to ask for. The contractor will not normally be obliged to undertake variations that would result in additional costs that would exceed 15% of the contract price or undertake changes that are of a substantially different nature to the work that was originally agreed.
Where variations are necessary due to the building contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. The contractor is liable for any delays caused to the project by these variations, and where the variation means that the work has not been carried out in accordance with the contract.
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When the work is completed, a certificate of completion must be issued by the building authorities before the or building works can be used. If the building authorities consider that the development has been carried out in accordance with the building permit and the general requirements of planning and building legislation, a certificate of completion will be issued confirming this.
If the building authorities consider that there are relatively minor faults or defects with the development, the authorities can issue a temporary permit of use. The temporary permit means that the development can be used but on condition that the faults are corrected within a set period of time.
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In Norway, limitation periods are imposed by the Limitation Act of 1979 (foreldelsesloven). . The general limitation period is three years.
The Limitation Act also provides for a supplementary limitation period. If a creditor has not made a claim because he did not have knowledge of the claim or of the debtor, the limitation period will expire one year after the date on which the creditor obtained or should have obtained such knowledge. This additional limitation period is often useful in cases of hidden defects. The limitation period cannot be extended under this provision beyond 10 years, and 13 years in total from the limitation period starts.
The limitation period runs from the date of the breach of contract. It is necessary, at the outset of any new claim, to determine whether or not the limitation period has expired. If it has, the claim will be statute-barred and the claimant may be prevented from bringing a claim before courts.
In addition, some of the standard documents include regulations on notification periods, some of which may have preclusive effects. For example, for any variation claims rejected by the client under a D&B standard form contract (NS 8407), the contractor must take necessary steps to initiate ordinary court (or arbitration) proceedings no later than eight months after the taking over of the entire contract work. Failure to do so may result in a loss of the variation claim.
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The developer is responsible to end users for faults and defects in the building works, including faults in the contractor’s or the architect’s work.
The developer’s liability to the end user is limited to the time limits for claims contained in the agreement between the developer and the end user and the general limitation period under the Limitation Act of 1979.
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The starting point under Norwegian law is that third parties – who are not parties to the construction contract – do not have the right to bring claims directly against the original designers and contractors involved in the design and construction of the project.
Under Norwegian law, pure economic loss – which includes the costs of remedying defects in a building, as well as loss of profits, loss of income, damage to stock and so on – is not recoverable where there is no contract between parties. In such cases, the end user must make a claim against the seller for any loss suffered by the end user. The seller can, however, make a claim against the contractor if the loss (which is the subject of a claim by the end user against the seller) was caused by defects in the contractor’s work.
However, some legislation and standard documents give the end user/purchaser the right to make a claim directly against an underlying contractual party, such as another contractor or sub-contractor.
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The starting point under Norwegian law is that third parties – who are not parties to the construction contract – do not have the right to bring claims directly against the original designers and contractors involved in the design and construction of the project.
Purchasers, tenants and lending banks must therefore bring their claims against their contracting party.
However, some acts and standard form contracts provide the right to make a claim directly against an underlying contractual party.
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In Norway, construction disputes are heard by the ordinary courts. There are no specific courts which specialize in construction disputes. Disputes are heard before the District Court in the first instance. As the District Court does not specialize in construction disputes, both parties may require that the court is composed with two expert lay judges (in addition to the ordinary judge). The expert lay judges will not be lawyers, but will have expertise in relation to the relevant matter in dispute.
The District Court’s decision can be appealed to the Court of Appeal. The parties can also require that two expert lay judges sit on the Court of Appeal, together with the three ordinary judges.
A decision of the Court of Appeal can be appealed to the Supreme Court. It is only possible to bring an appeal to the Supreme Court in certain limited situations. The Supreme Court only deals with appeals which involve questions that are of significance beyond the particular case, or if it is particularly important that the Supreme Court deals with the appealed case.
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Construction disputes are often referred to arbitration, particularly where the dispute has a high economic value. In general, the parties must expressly agree on the referral to arbitration, either beforehand (for all or certain disputes that may arise) or for a dispute that has already arisen.
In addition, some of the standard documents provide for different methods of resolving a dispute depending upon the economic value in question. Cases of a certain level of economic value are resolved by arbitration, whereas cases where the claim value is lower are heard by the ordinary courts.
Arbitration hearings are governed by the Law on Arbitration of 2004. It is not possible to appeal arbitration decisions. However, it is possible to have the decision declared invalid on the grounds of a procedural error. In order to do so, legal action must be brought before the ordinary courts.
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Under Norwegian law there is a requirement that arbitration before the Conciliation Board must be the first form of dispute resolution for parties seeking to take legal action. Until this has been done, the parties cannot bring an action before the District Court. However, this is not a requirement if both parties are represented by a lawyer and the value of the claim is more than NOK 200,000. Construction disputes usually meet both of these requirements and are therefore often exempt from this arbitration requirement. In the rare occasions where these requirements are not met (for example because one of the parties are not (yet) represented by a lawyer), the Conciliation Board may discontinue the proceedings where it is found unlikely that the case is suited for continued conciliation board proceedings. This is often the case in complex construction disputes.
Some standard documents include provisions regarding determination by an expert arbitrator. Unless agreed otherwise, each party can require that a dispute is determined by an expert arbitrator. However, this only applies during the course of the project, until possession of the works is taken by the other party. In practice, parties rarely refer disputes to such expert arbitrators.
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Are any terms and conditions imposed or implied by law or mandatory in contracts for the design or carrying out of building works?
Norwegian contract law is based on the principle of contractual freedom. The principle provides the parties a right to agree and enter into contracts without mandatory governmental restrictions. However, when one of the parties to the contract is regarded as a non-professional or ‘a consumer’, some Acts contain mandatory provisions.
Certain provisions in the standard construction documents are incorporated as a result of statutes and case law.
From 24 April 2013 minimum wage rates for skilled and unskilled construction workers apply on construction sites. The minimum wage is mandatory in all construction projects. The regulation has been updated several times, with the latest version entering into force in December 2022.
Last modified 7 Oct 2024