REALWorld Law

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The main source of law is the Hungarian Civil Code (Act V of 2013) which contains the general provisions regulating contracts for the design and carrying out of building works (and contracts in general). As a main rule, these provisions are permissive, so the parties (such as the employer, contractor etc) are free to deviate from the rules contained in the Civil Code.

There are several other statutes directly governing and regulating construction in detail. The most important of these include the Hungarian Architecture Act (Act C of 2023), Government Decrees Nos. 191/2009, 194/2009, 281/2024, 266/2013 and 143/2018.

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

There are several official permissions, licences and consents to be obtained to carry out construction work, for example:

• Environmental impact assessment (EIA): in certain cases, where the construction project is likely to have a significant impact on the environment, an EIA must precede the construction works.¹
• Building permit: in most cases, this is required for construction work to start. As a rule, the construction works must start within four years from the date when the building permit became final and binding. The works must be completed in a ‘ready-for-occupancy’ condition within six years, and the deadline cannot be extended. If the works are not started or completed within the applicable deadlines then the building permit becomes ineffective and a new building permit must be obtained.2

It should be noted that for special building projects additional permits may be required (eg. permits for power plants and industrial facilities).

In the case of certain retail buildings or units with a gross floor area of over 400 square meters special licensing procedures apply.

¹EIA obliged activities are listed in Annex 1 of Gov. Decree 314/2005 on environmental impact assessment and unified environment use permitting procedure
²Gov. Decree 281/2024, 28.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

There are several statutory regulations relating to health and safety in the workplace and on construction sites, including provisions relating to protective clothing and equipment, maintenance of a safe working environment, mandatory training and fire protection rules etc. Certain construction activities require the presence of professionals qualified in fire protection.

The parties usually agree in the construction contract that the (main) contractor will be the person liable to ensure that the health and safety regulations are complied with on the construction site.  Furthermore, one of the main roles of the technical manager (who coordinates and manages the construction works) employed by the main contractor is to ensure that the works are in full compliance with the applicable laws and regulations, including health and safety regulations.¹ Necessary steps are required to be taken already in the design stage preceding the construction itself (eg the designer shall appoint in advance in the process of preparing the construction master plan a coordinator for upholding occupational safety and health requirements and shall make recommendations for the completion of the working drawings from the point of view of health and safety at works). Contractors are required to use a coordinator during construction works also. The construction superintendent shall implement the coordinator’s reasoned recommendations. The contractor may begin setting up the construction site only if a safety and healthcare plan is enclosed with the construction master plan.

Following completion and takeover, liability shifts to the employer (or owner) and in practice transforms into a liability to maintain and repair the building and to keep it in a proper condition which does not endanger health and safety.²

¹Gov. Decree 191/2009, 13-14.§, 4/2002 Decree of the Minister of Social and Family Affairs and the Minister of Health on minimum requirements for the protection of workers at construction sites and during construction processes
²Gov. Decree 191/2009, 34.§ (5), (6), Act C of 2023, 174.§ (2)

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The main legislation in this regard is the Environmental Protection Act (Act LIII of 1995). There are several other statutory regulations in relation to air and water protection and the disposal of waste, including construction waste. Beyond the prescriptions of the Environmental Protection Act, Decree 314/2005 on environmental impact assessment and on unified environment use authorization processes defines certain activities where mandatory preliminary environmental impact assessment shall be conducted.¹

In Hungary, the ‘polluter pays’ principle applies. The owners and, if different from the owners, possessors (users) of land have joint and several liability for environmental damage or the endangering of the environment on that land. The owner may only be relieved of environmental liability if it is able to prove that it did not itself cause the damage and names the person actually liable for the pollution.² 

In certain cases, where the construction project is likely to have a significant impact on the environment, an environmental impact assessment must precede the construction works.³

¹Annex 1 of Gov. Decree 314/2005
²Act LIII of 1995, 102.§ (1)-(2)
³Act LIII of 1995, 68-69.§§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

It is common for developers to sign a community development agreement with the local municipality,¹ in which the developer undertakes to finance the rezoning costs of the development area, to carry out certain public works, such as landscaping or the construction of roads, public parking spaces or pavements. The works and structures so constructed would thereafter be handed over to the local municipality free of charge.

In the case of substantial greenfield developments local municipalities may participate in, and partially finance, the costs of creating the necessary utility connections.

¹Act C of 2023, 92. § (1)

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

In general, the parties to a contract for the design or carrying out of building works are free to contract as they wish.¹ There are, however, certain provisions that are mandatory. Such mandatory requirements include (among others):

• Architectural and engineering contracts must be concluded in writing.²
• Construction agreements – when construction activity is performed as a business activity - must be concluded in writing.³
• Liability may not be validly excluded for breach of contract for damaging life, physical integrity or health, and for damages caused by wilful misconduct or a criminal act.⁴
• Statutory guarantee shall apply for specified periods (three, five or ten years) to certain construction works and structures in case of newly built residential real properties which must be provided by the contractor to the developer.⁵ Certain construction projects are subject to ‘project fund management’ where the funds covering the costs of the construction works are deposited into a separate account accessed exclusively by the project fund manager, aiming to ensure that the funds are used for the purposes specified in the construction contract.⁶

¹Civil Code 6:59.§ (2)
²Act C of 2023, 78. § (2)
³Act C of 2023, 188. § (5)
⁴Civil Code 6:152.§
⁵Government Decree 181/2003 (XI.5.), 3. § (1)
⁶Act C of 2023, 190.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Although the method of payment is subject to the parties’ agreement, the most typical scenario is that payment is made after completion of each milestone.

Fixed-price contracts are common in Hungary, although other payment and calculation methods are also in use, including prime cost and cost plus fee arrangements. The contractor may become entitled to additional payment(s) if variations to the original technical specifications are requested by the employer.¹

To ensure that the funds earmarked for certain construction and building activities are used for the purposes specified in the construction contract, the applicable law² requires the employment of a project fund manager for construction works exceeding the current value of EUR 5,538,000. The most important aspect of ‘project fund management’ is that the funds to cover the costs of the construction works must be deposited into a separate account accessed exclusively by the project fund manager who is responsible for the distribution of these funds to the contractor and sub-contractors. Construction concessions and works awarded through public procurement are not subject to ‘project fund management’ except for buildings dedicated to the use of nuclear energy, defence, military and national security.

¹Civil Code 6:245.§
²Gov. Decre 191/2009., 17. § (2) b)

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The parties are free to agree on a fixed completion deadline.¹

If there is a delay in completing the works by the date specified in the construction contract, the employer may bring a claim against the contractor for general damages for late completion. In addition, construction contracts usually include liquidated damages provisions (a liquidated damages clause) in which an amount or a percentage of the contractor’s fee is set forth as applicable for each calendar day of the delay until the maximum amount, also defined in the contract, is reached. It is important to note that excessive liquidated damages may be reduced by the court.²

As to late payment by the employer, the contractor may become entitled to late payment interest.³

¹Civil Code 6:35.§ (1)
²Civil Code 6:186-189.§
³Civil Code 6:48.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

As a general rule, the employer may instruct the contractor and request variations to the construction works. If the requested variations affect the original technical specifications, the contractor may become entitled to additional fee(s) and extra time for completion.¹

¹ Civil Code 6:244.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The building works are taken over by the employer when completion of the works has been reported by the contractor to the employer. In certain cases, a trial operation lasting for at least 30 days is also required. As part of the takeover procedure, the employer inspects the works and any deficiencies, defects and warranty claims are recorded. Minor defects not affecting ordinary use usually do not entitle the employer to reject taking over the works.¹

For the purpose of issuing the occupancy permit the representatives of the relevant authorities also conduct a site visit in order to determine whether the works have been carried out and completed in compliance with the applicable laws, regulations and the building permit and whether the works are suitable for the intended use and occupation.

The parties may also agree that the certification of completion is referred to a third-party certifier, such as an architect or engineer. This is also common in FIDIC (and FIDIC-based) construction contracts.

¹ Civil Code 6:247.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The general limitation period, including the period available to file claims for damages, is five years.¹

Guarantee claims can be made within the deadline set forth in the construction contract. In certain cases, the (minimum) guarantee period is prescribed by law.

¹ Civil Code 6:22.§ (1)

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Provided that the developer and the end user have contractual relationship, the developer is liable for any physical damage or economic loss suffered by the end user in accordance with the general liability rules for breach of contract. Limitation (including exclusion) of developer’s liability for the construction of the works may only be possible if there is an adequate compensation (eg. a price reduction) for such limitation. In certain cases however, the developer’s liability may not be validly excluded including bodily injury damage to health, and for damages caused by wilful misconduct or a criminal act.¹

¹ Civil Code 6:142.§; 6:152.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Due to the lack of contract between the architect/designer/(sub-)contractor and the end user, the latter may enforce its claims against the architect/designer/(sub-)contractor for damages in accordance with the general tort liability rules, pursuant to which a person causing damage to another person in violation of the law shall be liable for such damage and may only be relieved of liability if he is able to prove that he has acted in a manner that can generally be expected in the given situation. The period of limitation for such claims is, as a general rule, five years.¹

¹ Civil Code 6:519.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

Due to the lack of contract between the designer/contractor and the purchaser/tenant/bank as affected third party, the latter may enforce its claims against the designer/contractor for damages in accordance with the general tort liability rules, pursuant to which a person causing damage to another person in violation of the law shall be liable for such damage and may only be relieved of liability if he is able to prove that he has acted in a manner that can generally be expected in the given situation.¹

Additionally, developers tend to assign all rights under design/construction contracts to the end users, allowing them to sue the designers/contractors for breach of contract directly.

¹ Civil Code 6:519.§

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The general ordinary courts deal with construction disputes as no specialized courts exist for this purpose. However, technical experts/consultants are often involved, including the Performance Certification Expert Board, which at the request of the parties (eg the contractor or designer) will deliver an expert opinion as to whether the contractor’s performance complied with statutory requirements and the conditions of the construction contract.¹

Claims of lesser value (ie below HUF 30,000,000) will start in a district court, whilst more substantial claims (ie over HUF 30,000,000) will be heard in a regional court (in Budapest, this is the Metropolitan Court). First instance decisions of the ordinary courts can be appealed either to the regional court (Metropolitan Court) or the Regional Court of Appeal depending on which court acted as the court of first instance. The ultimate court of appeal through the supervisory proceedings is the Curia (Supreme Court of Hungary).²

¹ Act XXXIV. of 2013
² Act CXXX of 2016 on Civil Procedure, 20. §

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

It is quite common in Hungary that construction disputes are referred to arbitration. The Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry is a popular arbitration court. The use of arbitration is always based on the decision of the contracting parties and their choice must be included in the construction contract.

The advantage of the use of arbitration as a method of dispute resolution is that it is significantly faster than the ordinary litigation proceedings and, unlike the decision of an ordinary court, the decision of an arbitration court cannot be appealed. One drawback is that arbitration is considerably more expensive than litigation through the ordinary courts.

Last modified 13 Mar 2025

Typically, who are the parties to an engineering or construction contract or package of contracts and who is responsible to whom?

The contracting parties are free to refer their construction dispute to ADR. Expert determination is typical where resolving the issue in dispute requires special skills and expertise. Experts are usually appointed by the mutual agreement of the parties and, similarly, the related costs are borne equally. To avoid any doubts and interpretation conflicts, the provisions for expert determination (if applied) should be included in detail in the construction contract.

Mediation is a relatively new form of ADR in Hungary and has a growing popularity. As a related obligatory requirement, legal entities must first attempt an out-of-court settlement of their dispute before filing a claim with the court.

Last modified 13 Mar 2025