There is no law in Sweden governing the rights and obligations of parties in commercial construction. For over one hundred years, we have instead solved this situation through standard agreements drafted jointly for the industry. This drafting has taken place through various organisations, presently joined together in the Construction Contracts Committee (the “BCC”) that drafts and continuously revises the most common standard agreements in construction, General Terms and Conditions AB 04, ABT 06 and ABK 09.
The Swedish Building Centre recently held a hearing regarding General Terms and Conditions AB 04, due to the fact that it has been ten years since it replaced its predecessor General Terms and Conditions AB 92. The organisation discussed the applicable rules and regulations and the possible need for revisions in the future. Most of the participants agreed that the General Terms and Conditions AB work very well as they are, while some pointed out that the system is ineffective and needs to be replaced by legislation.
Increased conflict orientation in the business world
I graduated in 1988 and began working at a law firm in 1992. My work since then has been to prevent and resolve disputes in the business community, primarily in the construction industry. Sweden was a different country in the early 1990s. There was hardly any IT, we were not a member of the EU, business was in principle domestic and the income and wealth disparities that followed as a result of deregulated financial markets, new technology and tax reforms were unthinkable then. The changes which have taken place in just a few decades apply to the entire Western world but are considered to have been particularly prominent in Sweden. This change, not least internationalisation of the economy, has created an approach to contracts in the business community which was unusual only twenty years ago. This change is also beginning to spread to the construction industry.
For a foreign property owner who wants to build in Sweden, there is no sentimentality with respect to the General Terms and Conditions AB. They are agreement terms and conditions just like any other agreement terms and conditions that you turn in your favour as far as the agreement negotiations allow. The discussions regarding the Alterations and Additional Work requirements that normally need to be dealt with in construction contracts and, for the most part, need to be resolved by mutual agreement after a little “arm twisting” are increasingly handled between lawyers, often using arguments based on very creative interpretations of the General Terms and Conditions AB. Construction law is also increasing in popularity as a subject for the future for young people to study and specialise in. This is only a good thing considering the enormous challenges we face in Sweden within urban construction and as a result of urbanisation. But the General Terms and Conditions AB really handle this?
The weaknesses of General Terms and Conditions AB
It is clear, to all specialists in construction law, it is clear that it is a rather fragile standard agreement after all when tested, for example, in a court of law. Many provisions are ambiguous, others incomplete and a number are marked by compromises between the BCC’s members which leave the parties to resolve the problems by consensus.
In other words, the General Terms and Conditions AB are not nearly as clear and predictable as a law normally is. Consequently, a little good will is required from the parties involved to resolve the interpretation issues that continually arise in construction projects and to settle disputes amicably. But what happens when there is no good will? Or when a more formalistic approach is involved? My personal view is that society is about to outrun the General Terms and Conditions AB. The General Terms and Conditions AB no longer provide the robust rules in a construction contract they are supposed to o and as are needed. At least when there is a lack of good will, which is the case remarkably often. On the part of all parties involved in a construction project. This undermines the legitimacy the General Terms and Conditions AB need to serve as straightforward and acceptable rules for construction contracts and further motivates the parties to change rules when given the opportunity in their favour often using with vaguely calculated assumptions and rules of responsibility with disputes ensuing as a result.
Wishful thinking for the future
To remedy this situation, I think that great efforts are needed by the BCC to fundamentally revise the entire system. This It could be achieved through a critical review of the wording of the existing regulatory framework in which all the flaws marked by decades of compromise are cleaned up. After that, an independent committee of experts should be appointed with the task of writing a complete commentary (of several hundred pages) to the whole regulatory framework, much as a preparatory work for an act: a commentary that all the members of the BCC agree in advance to respect and adhere to regardless of the outcome. A well-balanced contract, where risks are placed on the party that is best able to bear them, is normally in the interest of both parties and provides the basis for a healthy deal. The commentary should also provide guiding principles for such an expert committee. With such an initiative, the General Terms and Conditions AB would retain their legitimacy, and the industry could continue to regulate its rights and obligations under standard contracts instead of forcing through legislation. But, this is wishful thinking. Unfortunately, it is most likely hoping too much to believe that industry representatives within the BCC would dare to break the entrenched traditions in such a bold way.
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John Hane, Attorney and Partner
This article was published in Swedish in “Aktuella Bygglov”, Conventus Media House
