These are troubled times in the construction industry and a number of employers are hesitant about whether they dare to call off phase 2 of a collaboration contract that has begun.  But what happens to the design and other documents that have been produced during phase 1 if the employer chooses not to call off phase 2?

Construction projects that involve a number of uncertain factors or are difficult to define before procurement is sometimes carried out in the form of collaborative contracting (partnering). A common arrangement is then that the employer and contractor jointly carry out the preparatory work and define the project before the final decision on whether the project is to be implemented is taken by the employer. Contractually, collaboration contracts are therefore often divided into two or more phases, usually meaning that the design takes place during phase 1 and that the execution takes place during phase 2 after separate call-offs.

If the employer decides not to call off phase 2 at all, or wishes to postpone the decision on call-off until the market has stabilized and therefore does not call off phase 2 within the prescribed time, the choice of standard agreement and the regulation of the transition between the phases of the parties’ agreements determine who owns and is responsible for the contract documents.

Our experience is that the employer in the collaboration agreements takes unnecessary risks and fails to regulate in the agreement what is the actual main issue – the employer’s right to freely use the assignment results from phase 1 and choose if, how and when the contract is to be carried out. The contractor, on the other hand, makes the mistake of not securing compensation under phase 1 that covers the cost of the work done and the liability if phase 2 is not obtained.

The parties often agree that the standard agreement for consulting services, ABK 09, shall apply to phase 1 (the design), that the standard agreement for turnkey contracts, ABT 06, shall apply to phase 2 (the execution) and that the contractor’s liability according to ABT 06 during phase 2 shall also include a responsibility for the documents produced during phase 1, without the limitations imposed by ABK 09. Taken as a whole, however, the contractor acts as a turnkey contractor with responsibility for both design and execution, and the parties sometimes agree that ABT 06 shall apply to both phase 1 and 2.

ABK 09 during phase 1

ABK 09 is intended for use in consultancy assignments that include the production of documents. The standard agreement therefore contains provisions that regulate the employer’s right to use documents and the consultant’s responsibility for them.

ABK 09 chap. 7 § 1 states that the employer, unless otherwise agreed, has the right to use and copy the reported assignment results only for the purpose intended by the assignment. The commentary on the provision further states that it is important that the parties clearly state the purpose of the assignment. The employer thus gets a right to use the assignment result (drawings) to build, for example, the house that is intended by the assignment to the consultant; and this does not require a particularly explicit agreement that the employer will be allowed to build according to the drawings. Use beyond the purpose requires the consultant’s consent.

If ABK 09 is applicable as a standard agreement for phase 1, the employer is thus entitled to use the design for the intended purpose. What the intended purpose is must be assessed on the basis of what is stated in the contract, but the employer can normally use the documents to carry out the contract for which the design was carried out and the contractor is not entitled to any further compensation unless it is expressly stated in the contract. However, if the employer changes the conditions for phase 2, for example by replacing the contractor once phase 2 is called off or if a change/reduction in the scope of the contract occurs, the question arises as to what is covered by the “intended purpose”.

ABT 06 during phase 1

ABT 06 is not intended to be applied in cases where the contractor only performs the design. ABT 06 therefore does not contain as extensive a regulation regarding the right to use documents as ABK 09. In ABK 09 there is an entire chapter dedicated to “The right to the result of the assignment”, but ABT 06 contains a scant regulation regarding the employer’s right to use documents produced by the contractor. 

ABT 06 gives the employer the right to use documents relating to the contract for changes and management of the object. However, it is unclear whether this provision can be used as a basis for an employer to have the right to use documents produced during the design phase to carry out the contract in its entirety. Furthermore, it can be noted that this rule does not explicitly refer to the purchaser but to  the owner or user of the project. This means that the right under the rule ‘follows the house’, i.e. it is a contract in favour of a third party. Furthermore, it is unclear how the term “project” is to be understood in this context since it is not defined in the definitions in ABT 06.

Additional concerns arise if ABT 06 is the applicable standard contract for both phases 1 and 2 and the project is terminated after the design stage. Usually, a final inspection is carried out and the contract is handed over after approval at the final inspection. At the final inspection, however, the inspector must not check the contractor’s design, but only the physical end result. Since there is no physical end result after phase 1, the parties must agree that in the event of a termination, the “contract” shall be considered delivered in another way (see ABT Chapter 06, Section 7, Section 12). Furthermore, it is not entirely clear how ABT 06’s liability rules should be applied in cases where the contractor has only submitted design documents.

The importance of clear contract regulation

Neither ABK 09 nor ABT 06 thus contains a clear regulation of what applies when the parties choose to interrupt or “pause” their cooperation after the design phase (phase 1). An agreement for a “phased” partnering contract therefore always needs to be supplemented with a regulation of the transition between the two phases and the situation that phase 2 is not called off within the agreed deadline or not called off from the contractor who carried out phase 1.

Given the current market situation, it is particularly important that both the employer and the contractor carefully consider the risks and, in the agreement regarding phase 1, secure rights and compensation respectively in the various scenarios that may arise.