REALWorld Law

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The Civil and Commercial Code is generally regarded as the main source of law governing and regulating the specific contracts including construction contracts for building works. Its provisions stipulate the duties and liabilities of the contracting parties who enter into construction contracts.

In addition, the Building Control Act B.E. 2522(1979) and its accompanying ministerial regulations (collectively, the BCA) are the specific sources of law governing the process of application for building construction permits, restrictions on the construction of the building, safety, fire protection and various other aspects. Therefore, the BCA must be carefully considered by the developers or the contractors before commencing construction of a building.

The Town Planning Plan B.E. 2518(1975) and its accompanying ministerial regulations are the specific sources of laws governing town planning and the utilization of the land. The National Environmental Quality Act B.E. 2535(1992) and its accompanying ministerial regulations are the specific sources of laws governing environmental quality and environmental impact assessments. Consequently, it is also necessary for those laws to be considered by developers and contractors before planning the development of a project.

Announcement of the National Council for Peace and Order No. 3/2559 suspends certain restrictions under the general town and country plans to exclude the enforcement of the law on town planning and building controls in the area of special economic development zone by allowing the construction of industrial plants in areas declared as Special Economic Zones (SEZs). The provinces have been designated as SEZs are Chiang Rai, Kanchanaburi, Mukdahan, Nakhon Phanom, Narathiwat, Nong Khai, Sa Kaeo, Songkhla, Tak and Trat. This Announcement is however subject to change upon the authority’s discretion.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Pursuant to the Building Control Act, it is a mandatory requirement to obtain a Building Permit or Letter of Notification for the Construction of a Building (LNC) prior to the construction of a building.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

In particular, the Building Control Act (BCA) stipulates the application process for a building construction permit, restrictions on the construction of the building, safety, fire protection and various other matters. The BCA therefore must be carefully considered by developers or contractors before commencing the construction of a building.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Certain projects or developments require that an environmental impact assessment report (EIA report) is approved before construction of a building can be commenced. This is in accordance with the applicable Notification issued by the Ministry of Natural Resources and the Environment regarding ‘Types and Sizes of Projects or Operations which are required to prepare Environmental Impact Assessment Report which is enacted under the National Environmental Quality Act B.E. 2535(1992).

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Utility arrangements are normally made prior to the construction of a building with utility suppliers. In Thailand, most utility suppliers are operated by public entities therefore, applications for connection to utilities will be dealt with in accordance with the rules and regulations of the relevant authority.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

In principle, the terms and conditions of the construction contract govern the design or carrying out of building works to the extent that such terms and conditions are not expressly prohibited by law and are not impossible or contrary to public order or good morals.

Unless the construction contract states otherwise, the following provisions of the Civil and Commercial Code apply in relation to the construction of a building:

• Section 593: If the contractor does not commence work in accordance with the contract terms, or if, without fault on the part of the employer, there is a delay in the commencement of the work in such a manner that it can be foreseen that the work will not be finished within the agreed period, the employer is entitled to rescind the contract without waiting for the time agreed upon for delivery.
• Section 594: When it is possible to foresee with certainty, whilst the work is proceeding, that, due to default by the contractor, the work will be executed in a defective manner or contrary to the terms of the contract, the employer may require the contractor by notice to make good the defect or to comply with the terms of the contract within a reasonable time (to be fixed in the notice) failing which the employer is entitled to have the work repaired or continued by a third person at the risk and expense of the contractor.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

For public procurement, the standard agreement pursuant to the Regulation of the Ministry of Finance On Public Procurement and Supplies Administration Act, B.E. 2560 (2017)  generally applies to any construction contract made with governmental bodies. In the scheme of public procurement, the contractor would usually not be allowed to change or adjust the significant terms and conditions of the standard agreement. In cases where the changes in material terms and conditions under the standard agreement are necessary, an approval from the Office of the Attorney General is required.

With respect to a private scheme, although standard agreements have been produced by various organizations, parties may enter into construction contracts pursuant to standard agreements or otherwise. The parties’ intentions govern the duties and liabilities between the contracting parties which are subsequently reflected in the terms and conditions of the construction contract.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The following parties are generally involved in construction contract:

Employer

This is a party procuring or instructing the construction of the building by a contractor (commonly referred to the project owner or project developer).

Main Contractor and Sub-contractor

A main contractor is hired to carry out all construction works involved in the building in accordance with the construction contract and is directly liable to the Employer in the event of any dispute which occurs in relation to the construction of the building. Most main contractors usually engage a sub-contractor to carry out certain parts of the construction works. The sub-contractor will be directly liable to the main contractor in the event of any dispute which occurs in relation to the construction of the building.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The contractor generally bears the potential risks or any losses incurred during the construction process. Upon delivery of the work, under Section 600 of the Civil and Commercial Code, unless otherwise provided in the contract, the contractor is only liable for a defect which appears within five years after delivery of the work. This limitation does not apply if the contractor has concealed the defect.

In addition, the construction contract usually contains a force majeure clause. A force majeure event occurs when an event happens that is outside of the control of the parties, for instance, a natural disaster or uprising. The event cannot have been reasonably foreseen and cannot have been prevented. In the event of a force majeure event, the contractor may avoid liability.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Public-private partnerships (PPPs) are a common form of collaboration between the public sector and the private sector in Thailand. The public and private entities will jointly operate a project, for instance, infrastructure, energy or telecommunication projects, in a mutually beneficial collaboration. Public sector entities are sometimes subject to various limitations, such as lack of funds for investment, technical knowledge or the capacity to carry out operations efficiently. A private sector entity may be able to offer greater resources to overcome these limitations, while lacking the capacity to oversee and operate the services that the project offers. The main forms of PPP include, but are not limited to, concessions and joint-ventures. The process of collaboration in PPPs is subject to the Public Private Partnership Act B.E. 2562 (2019).

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Yes. The parties are able to fix the price for the entire work whereby the price is stipulated in the construction contract. Consequently, the contractor will take the risk of increasing costs, including materials and labour. This usually occurs in regard to public procurement.

Alternatively, payment in a construction contract may be split into separate stages. This usually occurs in regard to private procurement.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

There is no legal requirement to insert an insurance clause into a construction contract. However, in practice, the contractor will normally enter into an insurance policy with an insurer in order to protect itself against loss. The premium will be calculated on the basis of the potential risks and the amount insured.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The parties commonly agree on the following types of security in a construction contract, especially in public procurement situations:

Bid bonds

The contractor provides a bid bond to the employer during the bidding process in order to provide security in the event that the bidder defaults in the process of entering into the construction contract.

Performance bonds

The contractor provides a performance bond to the employer during the construction contract in order to provide security in the event that the contractor defaults in performing its duties under the construction contract.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

There are various methods of payment, each of which is stipulated in the construction contract.

The payment will generally be made on an installments basis in connection with the progress of each stage of the works. Once the works have been inspected, the payment to the contractor will be made in accordance with the payment dates agreed upon and outlined in the construction contract. In addition, unless otherwise provided in the contract, a retention is usually required in order to guarantee the remediation of any defects incurring after the date of delivery of the works.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Yes. The construction contract will usually set out the specific date for completion of the works. If the contractor fails to meet the deadline, a default or breach of contract will occur. The employer subsequently is entitled to claim for any damages for late completion.

In addition, the contract will generally fix the penalty for late completion at a specific amount on a daily basis, and if the limitations on such penalties are reached, the employer is entitled to terminate the construction contract and claim any damages incurred due to the termination of the construction contract.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Variations to the scope of the works can be made pursuant to the parties agreement in the construction contract.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

In Thailand, the law does not stipulate what has to be achieved before 'completion' of the construction works; this depends on the terms and conditions under the construction contract mutually agreed upon by the parties. In practice, the acceptance by the employer will be an official indication of completion of the construction works pursuant to the construction contract. In this regard, the employer must exercise caution on the acceptance of the delivery of the work because the contractor is not liable for any defect after acceptance by the employer, whether expressly or implied, unless the defect could not have been discovered before acceptance or the defect was concealed by the contractor pursuant to Section 598 of the Civil and Commercial Code.

In addition, unless otherwise provided in the contract, the contractor is liable for any defect which appears within five years from the date of delivery if the work is for the construction of a building pursuant to Section 600 of the Civil and Commercial Code.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

A specialist court for construction disputes does not exist in Thailand. Claims relating to construction disputes are submitted to the court with territorial jurisdiction covering the defendant, or to the court within territorial jurisdiction over the place in which the cause of action arose, in which case it is unnecessary for the defendant to have a domicile in Thailand.

Court decisions may be appealed. Thailand's court system has three levels: the Court of First Instance, the Court of Appeal and the Supreme Court. If the parties disagree on the judgment rendered by the Court of First Instance, either party may appeal the decision to the Court of Appeal. Similarly, either party may appeal the judgment of the Court of Appeal to the Supreme Court.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Construction contracts commonly contain an arbitration clause for the settlement of disputes arising from the construction contract. The arbitration system allows the parties to appoint specialist arbitrators. Arbitration proceedings are normally faster than litigation proceedings through the judicial system, and arbitration offers confidentiality to the parties. The Arbitration Act B.E. 2545(2002) stipulates arbitration procedures under Thai law.

Last modified 19 Jul 2023

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

ADR is an optional, though not yet common, proceeding for the settlement of disputes arising from construction contracts and may include various types of resolution such as mediation, conciliation and compromise.

Thailand is continuing to recognize the significance of ADR proceedings. To this end, the Alternative Dispute Resolution Office was established to promote, support and advise on ADR proceedings, though Thai law does not require submission to ADR.

Last modified 19 Jul 2023