Construction and Sub-contractor contract. Legal obligations for Builders

LEGAL ASPECTS OF THE CONSTRUCTION PROCESS:

  • The builder
  • Terms of the construction contract
  • Terms of subcontracting
  • The subcontractor

 

Builder/Contractor

The builder or contractor is the construction agent who undertakes, contractually before the developer, to execute with human and material resources, whether their own or those of others, the works or part of the works that are the subject of the project and the contract.

The main obligation of the builder is to achieve a useful result for the developer by completing the work carried out. However, the contractor assumes various obligations and responsibilities:

– in the contractual sphere, they assume the risk and cost of loss or destruction of the work until its delivery, except in the event of delay in delivery (Articles 1544, 1588 et seq. of the Civil Code; Article 17 of the LOE);

– at the workplace (they may be at fault in the choice and supervision);

– in relation to materials (whether supplied or installed by the builder);

– in relation to capital, its financing, etc.

Details

Inspired by the principle of risk and adventure of the contractor, the construction contract is also known as a contract for services, in reference to the different obligations and responsibilities assumed by the contractor under the contract and the fact that the contractor must provide the human and material resources necessary to obtain the agreed result.

Requirements

The builder must have the professional qualification or training that enables them to meet the conditions required to act as a builder.

In the absence of any specification of the professional qualification or training referred to and of a specific qualification aimed at training contractors, the legal provision relating to the builder’s qualifying qualification is meaningless and remains a mere declaration of good intentions.

Given that there is no official qualification to be a contractor, anyone, whether a natural or legal person, with legal capacity to enter into contracts and with sufficient professional (and financial) capacity to perform the works contract can currently be a contractor.

However, where applicable, the contractor must be subject to the obligations established by the Autonomous Communities for the exercise of the profession of builder, as they are the only competent authorities to lay down rules relating to the exercise of unskilled professions in the field of construction.

There are some official qualifications and professional training related to various material activities in construction (e.g. construction and building plans, bricklaying, etc.). In this regard, there are certificates of professional competence that attest to the skills and experience acquired by some construction technicians.

Obligations

In addition to the requirement relating to professional qualifications or training that enables them to be a builder, they have the following obligations:

  • The execution of the work in accordance with the project, the applicable regulations and the instructions of the project manager and the construction manager, in order to achieve the quality required in the project.

The execution of the work by the contractor must comply with the following parameters:

– the order received from the principal or developer;

– the project drawn up by the designer/architect;

– the lex artis of the builder, which forms part of the contract (Art. 1258 of the Civil Code), i.e. they must comply with the usual rules and good practices specific to their profession;

– the applicable legislation, in particular that relating to construction products, quality control, health and safety, occupational risk prevention, etc., and must have the necessary authorisations, permits and licences, etc.;

– the instructions of the developer, generally channelled through the project management, i.e. the project manager and the construction manager.

As analysed above, the contractor does not fulfil its obligation to perform its activity with due diligence; it is necessary to achieve the result established in the contract. Therefore, the risk of loss of the item/work until delivery of the work is borne by the contractor.

The contractor cannot limit itself to carrying out technical instructions, as its status as an expert allows it to assess the feasibility of the instructions and orders received, as well as the suitability of the construction materials if they are supplied by the principal/developer. It is their obligation to warn the principal when instructions or orders are incorrect or unfeasible and, therefore, they are entitled not to carry out or execute orders when, in their opinion, they are incorrect or unfeasible.

Note

The contractor must obey the developer’s instructions; however, they cannot claim or hide behind the fact that they are doing what the technicians tell them to do in order to avoid their potential liability in relation to the works.

  • The appointment of the site manager, who acts as the builder’s technical representative on site and who, due to their qualifications or experience, must have the appropriate training for the characteristics and complexity of the work.

The site manager is not required to have an academic qualification. Therefore, they are usually a technical architect or someone with extensive experience in the construction industry.

The site manager must be able to give orders to their subordinates, be familiar with the construction work to be carried out and be able to order in advance the human and material resources necessary to complete and execute the work as agreed by the contractor and the principal in the contract.

  • The allocation of the human and material resources required by the importance of the work. The contractor must allocate the human and material resources necessary to achieve the result in accordance with the contractual agreement to the work.

The builder does not usually carry out its activity directly, but rather through its business structure. Therefore, total or partial subcontracting of the works is possible, provided that the requirements contained in Law 32/2006, which regulates the role of subcontractors in the construction sector, are met, unless this option has been expressly excluded in the contract, or unless the principal awards or entrusts the entire works to the contractor on the basis of the latter’s personal conditions.

  • The formalisation of the subcontracting of certain parts or installations of the work within the limits established in the contract and in Law 32/2006.

Subcontracting is included among the contractor’s obligations; however, it is not so much an obligation as a power of the contractor.

The contractor is directly liable to the owner of the work for the work carried out by subcontractors. In turn, if the work was adjusted in any way, the subcontractor may bring a subrogatory and subsidiary action against the owner of the work to claim what the contractor owes them.

  • The signing of the site survey or commencement of works report and the works acceptance report. The reconsideration report must be signed by the contractor and by the optional management, i.e. the project manager and the works manager.

The layout must be carried out by the builder as part of the execution of the work. The layout report must indicate whether the work is adequate and, if so, the layout report serves as the formal start of the work.

The contractor is also obliged to sign the work acceptance report, which must be signed by both the contractor and the developer (art. 6 of the LOE). If any reservations are recorded in the acceptance report, once these reservations have been corrected, the contractor must sign the correction report (art. 6.2.d of the LOE).

  • Provide the project manager with the necessary information for the execution of the documentation of the work carried out. The contractor must provide the project manager with the information and documentation necessary for the preparation of the documentation relating to the work carried out (Art. 12.3.f of the LOE).
  • The subscription of the guarantees provided for in no. 1816 s. This obligation refers to the insurance for material damage, bond or financial guarantee that the builder must take out to cover material damage due to defects or flaws in the execution that affect the finishing or completion of the works and that must be compensated within one year of the completion of the works and their delivery to the developer.

 

Retention of 5% of the amount of the work

It is possible to replace the subscription to this insurance with a retention by the developer of 5% of the amount of the material execution of the work throughout the guarantee period. It should be understood, although the LOE does not say so, that it would also be possible for the contractor to replace the aforementioned insurance policy with the provision to the developer of a bank guarantee covering at least 5% of the material execution of the work during the one-year period, whereby compensation would be paid, where applicable, any material damage caused to the building by defects or faults in its execution affecting finishing or completion elements during the aforementioned year.

The developer may expressly agree with the contractor that he shall be the policyholder on behalf of the contractor with respect to (art. 19.1.b and c and 19.2.a of the LOE):

– property damage insurance or surety insurance guaranteeing compensation for three years for damage caused by defects or faults in the construction elements or installations that result in non-compliance with habitability requirements; and

– property damage insurance or surety insurance guaranteeing compensation for 10 years for material damage caused to the building by defects or faults originating in or affecting the foundations, supports, beams, slabs, load-bearing walls or other structural elements, and which directly compromise the mechanical resistance and stability of the building.

 

 

Subcontractor

The subcontractor is the natural or legal person who contractually undertakes to the contractor or another main subcontractor to carry out certain parts or units of work, subject to the project governing its execution. Variations of this figure may include the first subcontractor (subcontractor whose principal is the contractor), second subcontractor (subcontractor whose principal is the first subcontractor), and so on.

Law 32/2006 regulates subcontracting in the construction sector and aims to improve working conditions in the sector in general and the health and safety conditions of workers in the sector in particular. This Law represents a radical change from the previous model, as it addresses for the first time, and in a strictly sectoral manner, the regulation of the legal regime for subcontracting, which, recognising its importance for the construction sector and its specialisation in increasing productivity, establishes a series of guarantees aimed at preventing the lack of control in this form of production organisation from causing objective situations of risk to the health and safety of workers in a country such as Spain, which continues to record a very high rate of accidents at work in terms of both numbers and severity.

This law, which is strictly sector-specific, applies to contracts entered into, under a subcontracting regime, for the execution of the following works carried out on construction sites:

– excavation;

– earthworks;

– construction;

– assembly and dismantling of prefabricated elements;

– connections or installations;

– transformation;

– refurbishment;

– repair;

– dismantling;

– demolition;

– maintenance;

– conservation and painting and cleaning work;

– sanitation.

Requirements for contractors and subcontractors

A series of requirements are established for contractors and subcontractors in order to prevent the participation of companies that do not have a minimum organisational structure to ensure that they are able to fulfil their obligations regarding the protection of workers’ health and safety.

In order for a company to be involved in the subcontracting process in the construction sector, as a contractor or subcontractor, it must meet the following requirements:

  • Have its own productive organisation, have the necessary material and human resources and use them to carry out the contracted activity.
  • Assume the risks, obligations and responsibilities of carrying out the business activity.
  • Exercise direct organisational and managerial authority over the work carried out by its workers on the site and, in the case of self-employed workers, carry out the work independently and on their own responsibility, outside the organisation and management of the company that has contracted them.

In addition to the above requirements, companies wishing to be contracted or subcontracted to carry out work on a construction site must:

  • Demonstrate that they have human resources, at management and production level, with the necessary training in occupational risk prevention, as well as a preventive organisation in accordance with Law 31/1995, for the prevention of occupational risks.
  • Be registered in the Register of Accredited Companies (no. 1631). This registration is carried out ex officio by the competent labour authority, on the basis of the declaration by the employer referred to in the following paragraph.

Contractors or subcontractors must prove compliance with the above requirements by means of a declaration signed by their legal representative before the Register of Accredited Companies. Registration is carried out ex officio by the competent labour authority on the basis of this declaration.

In addition, companies whose activity consists of being regularly contracted or subcontracted to carry out work in the construction sector must have, under the terms determined by the regulations, a number of workers employed on a permanent basis that is not less than 10% during the first 18 months of validity of this regulation, nor less than 20% during the 19th to 36th months, nor less than 30% from the 37th month onwards, both inclusive. For these purposes, in workers’ cooperatives, these shall be counted in the same way as employees, under the terms determined by the regulations.

 

Subcontracting regime

Excessive subcontracting chains, especially in the construction sector, operate to the detriment of business margins and the quality of the services provided, to the extent that, in the last links of the chain, these margins are practically non-existent, which favours undeclared work, precisely in the final element that must meet the health and safety conditions of the workers carrying out the work. Therefore, excessive subcontracting can facilitate the emergence of practices that are incompatible with health and safety at work.

However, subcontracting, as a form of production organisation, cannot be restricted, except under the conditions and in the cases provided for in Law 32/2006. Thus, the subcontracting regime in the construction sector in general is as follows:

    • The developer may contract directly with as many contractors as it deems appropriate, whether natural or legal persons.
    • The contractor may contract with subcontractors or self-employed workers for the execution of the works it has contracted with the developer.
    • The first and second subcontractors may subcontract the execution of the works they have contracted, respectively.
    • The third subcontractor may not subcontract the work it has contracted with another subcontractor or self-employed worker.
    • The self-employed worker may not subcontract the work entrusted to them to other subcontractors or other self-employed workers.

Likewise, subcontractors whose productive organisation implemented on the site consists mainly
the provision of labour, understood as that which, for the performance of the contracted activity, does not use more than its own work equipment other than hand tools, including portable power tools, even if it has the support of other work equipment other than that indicated, provided that this belongs to other companies, contractors or subcontractors on the site.
Notwithstanding the above, when, in duly justified cases, due to specialisation requirements of the works, technical complications in production or circumstances of force majeure affecting the parties involved in the work, it is necessary, in the opinion of the project management, to contract part of the work to third parties, exceptionally, the subcontracting established at an additional level may be extended, provided that its prior approval and the cause or reasons for it are recorded by the project management in the subcontracting book.

 

Details

The exceptional extension of subcontracting does not apply in the cases referred to in sections e) and f) above, unless the circumstance giving rise to it is force majeure.

The contractor shall inform the health and safety coordinator and the workers’ representatives of the various companies included in the scope of execution of its contract listed in the subcontracting book of any exceptional subcontracting.

The contractor shall also inform the competent labour authority of the exceptional subcontracting, sending, within five working days of its approval, information indicating the circumstances that led to it and a copy of the entry made in the subcontracting register.

 

Registration of accredited companies

For the purposes of the provisions relating to the subcontracting regime, a Register of Accredited Companies shall be created, under the authority of the competent labour authority, understood as that corresponding to the territory of the autonomous community in which the registered office of the contractor or subcontractor is located.

Registration in the Register of Accredited Companies shall be valid throughout the national territory, and the information contained therein shall be publicly accessible, except for information relating to personal privacy.

The content, form and effects of registration in this register shall be established by regulation, as shall the systems for coordinating the various registers maintained by the regional authorities in the field of labour.

 

Obligations of the contractor and subcontractor

The following obligations are established:

  • Duty of supervision and responsibilities arising from non-compliance. Contractors and subcontractors involved in construction work falling within the scope of Law 32/2006 must monitor compliance with the provisions of Law 32/2006 by subcontractors and self-employed workers with whom they contract, in particular with regard to:

– accreditation and registration obligations (Article 4.2 of Law 32/2006); and

– the subcontracting regime (Article 5 of Law 32/2006).

Subcontractors must communicate or transmit to the contractor, through their respective main companies, if different from the contractor, any information or documentation affecting the above.

Without prejudice to other responsibilities established in social legislation, failure to comply with the required accreditation and registration obligations or the subcontracting regime shall give rise to joint and several liability on the part of the subcontractor who has committed such breach and the corresponding contractor with regard to the labour and social security obligations arising from the performance of the agreed contract that correspond to the subcontractor responsible for the breach in the performance of its contract, regardless of the activity of such companies.

In any case, the liability established in Article 43 of the Workers’ Statute is enforceable when the conditions set forth therein are met.

  • Have the subcontracting documentation available. Each contractor must have a subcontracting book for any work that falls within the scope of Law 32/2006.
  • Duty to inform workers’ representatives. The representatives of the workers of the different companies involved in the execution of the work must be informed of the contracts and subcontracts entered into in connection with the work.
  • Certify the preventive training of workers. Companies must ensure that all workers providing services on construction sites have the necessary and appropriate training for their work or role in occupational risk prevention, so that they are aware of the risks and the measures to prevent them.

 

Details

(1) Through a sectoral collective agreement at the state level, systems or procedures for worker representation may be established through trade union representatives or bipartite representatives between employer and trade union organisations, in order to promote compliance with occupational risk prevention regulations on construction sites in the corresponding territory. Training programmes and specific content for each sector and for each type of work may also be established.

2) The system for accrediting specific training may consist of the issuance of a professional licence or card for each worker, which shall be unique and valid throughout the sector.

3) Subcontractors do not have the status of construction agents under the LOE, which defines the liability of construction agents for construction defects. The contractor is responsible for the activities of subcontractors, as they are contractually bound, and the subcontractor’s role is limited to following the instructions of their contractor (TS 9-10-18, EDJ 597989).

4) Violations of the provisions of Law 32/2006 are punishable in accordance with Royal Legislative Decree 5/2000, the consolidated text of the Law on Offences and Penalties in the Field of Social Order.