​​Building in Denmark​

Denmark has no statutory code governing construction contracts, e.g. no equivalent of the German BGB and VOB/B, no Code civil regime for the contrat d’entreprise, and no statutory adjudication or payment legislation of the kind found in the United Kingdom or Ireland.

Danish contract and construction law is largely uncodified. What fills the gap is the contract itself, read against general principles developed almost entirely in case law and arbitration.

Most construction projects in Denmark are governed by standard contracts based on the Danish AB-system. The AB contracts are not law; they are agreed-upon documents negotiated among the industry’s own organizations – clients, contractors, and consultants. It applies only where the parties agree that it should.

The AB-system consists of the following three standard forms:

1. AB 18 – Construction (the client is responsible for the design).
2. ABT 18 – Design and build.
3. ABR 18 – Consultancy services

Two features of AB18 often surprise foreign contractors.

The first is its scope. AB 18 is approximately 30 pages, whereas a FIDIC-based contract runs to well over 100 pages. The AB terms are short because they assume a body of Danish practice that is not written down but rather applies as default background rules.

A contractor who does not know that practice, and who does not find an express governing clause in the contract, may misjudge its own legal position.

The second feature is clause 1(2) of AB 18. A deviation from AB 18 is valid only if the contract clearly and expressly states what is deviated from. Danish practice therefore collects all deviations in a list in the special conditions. Arbitration tribunals interpret such deviations narrowly. That is especially so where a deviation moves risk away from the allocation set out in AB 18, even where the transfer of risk is stated clearly in the contract.

As a starting point, Danish large-scale projects procured by public entities are based on AB 18 or ABT 18 with extensive special conditions, although some large internationally tendered packages use bespoke or FIDIC-influenced forms.

In terms of infrastructure projects, these are mostly tendered under AB 18 or ABT 18 as well, with sector-specific conditions requiring the contractor to comply with requirements for working in areas such as railroads. Furthermore, specific constraints on extensions of time may be implemented.

For large-scale data center projects, the terms may very well be dependent on the background and originating country of the client and the contractor. In large international setups, the FIDIC terms may be chosen for their predictability and familiarity, whereas clients with small data center projects may use local contractors under the AB terms.

Regardless of the choice of terms, the main issue may be that foreign contractors do not pay attention to the pitfalls and the local legal framework. Risk allocation may be significantly different.

Foreign contractors are advised to check these conditions in detail rather than assuming that they will be handled in accordance with the approach familiar from FIDIC contracts or other jurisdictions.

AB 18 is both a main contract and a subcontract form. AB18, clause 2(1) provides that in subcontracting, “client” means the contractor and “contractor” means the subcontractor.

A back-to-back regime cannot be created by reference alone. Case law from the Danish Building and Construction Arbitration Board has shown that main contractors relying on wording stating that the subcontractor’s offer was given on the same conditions as applied towards the client may be in for a big surprise. Such wording may not be sufficient, and a main contractor may be barred from passing items, such as its liquidated damages, on to the subcontractor. Deadlines, liquidated damages, and security must be drafted expressly and tailored to the works covered by the subcontract.

Security is fixed by the standard and not negotiated project by project. The security is set at 15 percent of the contract sum until handover, at 10 percent after handover, and at 2 percent one year after handover, ceasing five years after handover, cf. AB18, clause 9(3), (5) and (6)).

Furthermore, the security is not purely on demand. A demand must specify the nature and extent of the alleged breach and is payable within ten working days unless the contractor first asks the Danish Building and Construction Arbitration Board for a decision, cf. AB18, clause 67.

Security also runs both ways. Unless the client is a public-sector client or a social housing organization, it must itself provide security of three months’ average payments and not less than 10 percent of the contract sum, cf. AB18, clause 10(3).

The contractor has both a duty and a right to remedy defects for five years after handover, and the client’s claims are barred after five years (clauses 49 and 55); a rectified defect starts a fresh five-year period, capped at three years beyond the original (AB18, clause 55(2)). By comparison, the Red and Yellow Book’s Defects Notification Period is one year by default, two at most.

The contractor’s liability under AB 18 is uncapped. AB 18 excludes loss of business, loss of profit and other indirect loss (AB18, clauses 53(2) and 54(2)). However, AB 18 contains no overall limitation of liability. There is no equivalent of the NEC X18 clauses or of sub-clause 1.15 (FIDIC Yellow Book 2017), which caps total liability at the Accepted Contract Amount where the Particular Conditions state no other figure. This is an important deviation from the approach normally seen in common law contracts. It is closer to German law, e.g. BGB § 249 and the principles codified in §§ 305–309.

Some foreign contractors may also be used to strict time bars, whereas the AB-system may have a more lenient approach.

As an example, claims regarding price and time must be made in writing or presented at a construction meeting as soon as possible (AB18, clause 25(1)). The same standard applies to notice of delay and of the extension of time claimed (AB18, clause 39(3) and (4)). “As soon as possible” is measured against what a competent contractor could have done. A party may therefore lose its rights by remaining passive, but the test is flexible rather than a fixed deadline.

That said, a pragmatic picture emerges in practice. It takes a great deal for a party to lose its rights for failure to give notice. A principle that runs throughout Danish law is that unjust enrichment should be avoided, including where it might result from non-compliance with formal requirements. This remains true even where the parties have expressly agreed in their contract to formal requirements and a time-bar clause.

The final account is treated more strictly. It must be submitted within 25 working days of handover, 35 working days for main contracts and 60 working days for construction works not connected with building works (AB18, clause 36(6)). If the contractor is late and the client demands the account in writing, the contractor is given ten further working days. After that, the clear starting point is that the contractor forfeits payment for extra work carried out on account and for wage and price increases (AB18, clause 36(7)). Once the client has received the final account, the contractor may only pursue claims that are specifically reserved in it (AB18, clause 36(5)).

Under the FIDIC suite of contracts, the Engineer administers the contract, certifies payment and, under sub-clause 3.7 (FIDIC Yellow Book 2017), must act neutrally in agreeing or determining claims within fixed time limits.

AB 18 has no such project role. AB18, clause 2(5) defines client supervision as the client’s own construction management and supervisory staff. As a result, on AB projects there is no project role acting neutrally in agreeing or determining claims.

Furthermore, there is no DAAB either. Disputes, if not settled amicably between the parties, are resolved through the formal dispute resolution procedures set out in the AB-system, e.g. mediation/conciliation, speedy resolution or arbitration. Before the parties may enter those procedures, they must complete the dispute resolution ladder, which requires a series of negotiations in five-working-day steps between the parties’ project managers and management representatives (AB18, clause 64).

As already stated above, Danish construction contracts are often limited in scope, which is why the background law plays a key role in understanding the parties’ rights and obligations and in interpreting the contract. Misunderstandings or a lack of knowledge about the background law constitutes a serious risk for contractors.

Furthermore, the preamble to the official English translation of AB 18 states expressly that the Danish text is controlling and prevails in the event of inconsistency.