13/07/2012

Contractor Liability Becoming More Stringent in September 2012

The Finnish Contractor’s Liability Act and Public Procurement Act are becoming more stringent on 1 September 2012 with regard to contractors’ obligations to require information from their contractual parties.

The amendments to the Contractor's Liability Act are intended to boost the effectiveness of the Act, and to give contracting authorities and other contractors better opportunities to ensure that their contractual partners are reliable and comply with relevant terms and conditions.

In the future, the contractor’s (meaning any party acting as a contractor in a building project) obligation to request for reports and certificates set out in the Contractor's Liability Act (e.g. information on registering, pension insurance, payment of taxes and collective labour agreement applicable) from its contractual party will be broadened to cover more situations. A new addition to the Act will also require the contractors to check that their contractual party has a statutory accident insurance policy and the scope of it is sufficient. With the amendments to the Act, the requirement to provide reports and certificates will also apply to companies with long-established business as well as established contractor–subcontractor relationships.

"Up until now the contractors have become accustomed to not asking for reports from established business partners that they've done lots of contracts with, or who seem trustworthy for other similar reasons," explains Emma Niemistö, an associate at Castrén & Snellman specializing in legal issues concerning construction. According to Ms Niemistö, before the amendment legislation allowed the contractors some leeway on whether to apply the provisions of the Contractor’s Liability Act on a case-by-case basis. Now, however, the duty to report is clearly more stringent and includes fewer exceptions.

Compliance with the law will be enforced through a non-observance payment. A contractor who fails to observe the requirements of the Contractor's Liability Act can in the future be penalised with a non-observance payment of EUR 16.000–50.000, whereas the earlier maximum payment was EUR 16.000.

The Public Procurement Act is also being amended. When entering into public works contracts, all public contracting authorities will now be obligated to demand that employment relationships connected with the contract be governed by the minimum requirements set forth in Finnish Law and applicable collective labour agreements (regarding for example hiring, working times and vacations). Before the amendment, this provision only applied to the state’s contracting authorities.

"Many of our clients that we advise concerning public procurement procedures or contractual matters in significant building projects already have a nice routine of ensuring compliance with the obligations of the Contractor's Liability Act," Niemistö adds. "Now would be a good time to review the standard terms in tender documentation and contract templates, in order to ensure that all operations are up to date in September when the new legislation enters into force. Responsible contractors can also use contractual provisions to obligate the subcontractors of their own contractual partners to include certain important conditions in their construction contracts, and thus promote compliance with the law throughout the contractual chain."

For further information, please contact:

Emma Niemistö
Anna Kuusniemi-Laine

 

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