REALWorld Law



How are payments to contractors, design consultants and subcontractors normally structured?



The contracting parties may agree on various pricing arrangements. The following terms are provided for by the Construction Contract Procedures Part B (VOB/B):

  • The unit price (Einheitspreis) is a price per unit of measurement of the quantity of work and services. The unit price depends on the estimated total quantity, which is estimated in the specifications and price schedules. 
  • A fixed price (Pauschalpreis) is a total price for the entire carrying out and completion of the construction contract without any further assessment of the works actually provided. 
  • According to the VOB/B hourly rates (Stundenlohnsätze) are only paid if expressly agreed in the contract beforehand. Such an arrangement is extremely disadvantageous for the principal since it pays for any shortcomings in the organisation, quality and diligence of the workers.

Payments are usually made in instalments according to the progress of the works already carried out. In relation to defects, the principal can make retentions or even refuse to pay instalments, Section 16 para. no. 2. Usually the construction contract sets out the payment schedule, the instalments and the effects of defects to the payment claims. Advance payments are usually secured by bank guarantees. The final account (Schlussrechnung) ensures the final settlement of the project, and precludes any subsequent claims.

The principal is only obliged to remunerate the contractors engaged by it directly. Where sub-contractors are engaged, these are not remunerated by the principal but by the relevant contracting party (ie the general or prime contractor or other sub-contractors). Sub-contractor agreements mostly follow the payment arrangements described above.