A Q&A guide to construction and projects law in The Netherlands.
The Q&A gives a high level overview of the main trends and significant deals; the main parties; procurement arrangements; transaction structures and corporate vehicles; financing projects; security and contractual protections that funders require; standard forms of contracts; risk allocation; excluding liability, including caps and force majeure; contractual provisions covering material delays and variations; appointing and paying contractors; subcontractors; licences and consents; projects insurance; labour laws; health and safety; environmental issues; corrupt business practices and bribery; bankruptcy/insolvency; public private partnerships (PPPs); dispute resolution; tax and mitigating tax liability; the main construction organisations; and proposals for reform.
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This Q&A is part of the PLC multi-jurisdictional guide to construction and projects law. For a full list of jurisdictional Q&As visit www.practicallaw.com/constructionhandbook.
The global financial crisis has affected the construction sector in The Netherlands. This is evident from the reduced number of projects we have seen in the market, particularly in the housing market. In light of this development there is an increasing demand for revitalisation of existing real estate. Of course, these trends have had an impact on which legal requirements are demanded in deals. For example, we have seen an increasing number of maintenance contracts.
Independent from the global financial crisis there is an increasing tendency amongst clients to delegate responsibility for the construction process to a third party, for example, to the developer or contractor. Furthermore, there is an increasing trend, in the pre-phase of the actual project, for contracts to be made in relation to the exploitation of the project.
Depending on the nature and size of the project there are various parties involved, though the main parties are as follows:
The form of the contract is dictated by the degree of responsibility that each party involved will assume. There is no difference between local and international market practice and the usual contract forms include design and build, EPC (engineering, procurement and construction), EPCM (engineering, procurement and construction management) and guaranteed maximum price contracts. There is an increasing trend to draw up contracts relating to the exploitation of the project before the project actually begins (see Question 1).
For further information, see Practice note, Procurement route: EPC or split EPC (www.practicallaw.com/3-383-4959).
The most commonly used structures in local projects include special purpose vehicles and joint ventures. There is no real difference in practice if the parties are local or international.
There is no real difference in practice if the parties are local or international (see Question 4).
Common forms of financing in The Netherlands include bank debt (including senior, as well as mezzanine), financing and equity funding. Depending on the size of the project and the parties involved, project financing transactions, in particular PPP financings, can also be financed or refinanced through bond issues.
In general, it is fair to say that it has become more difficult to obtain project financing from banks in The Netherlands. A number of large Dutch finance institutions have indicated over the past two years that they are no longer in the market for project finance, or are only in the market where the project has reached a more advanced stage and complies with certain minimum requirements (for example, a certain percentage of funding required for the project has already been made available through equity or by other means and/or a certain minimum percentage of a property has been pre-let or pre-sold).
Where a project is considered important in the context of developing a certain area or town district, additional funding may be available from municipalities in the form of sale and leaseback type of arrangements, or from the Dutch government in the form of a back-up guarantee to financiers for up to 50% of the total financing provided by them (and subject to a total maximum amount of EUR150 million) under the so-called GO-regulations (as at 1 April 2011, EUR1 was about US$1.42).
For further information see, Practice note, Understanding Project Finance Construction Contracts (www.practicallaw.com/1-422-1870).
Various forms of security can be applied, depending on the size, nature and the solvency of the contractor. A usual security package for a Dutch development/borrower related project financing generally consists of:
A mortgage over the land and property to be developed.
A (disclosed) pledge over the shares in the property company that owns the property to be developed and sometimes its holding company.
Pledges over all project related rights and receivables, including project accounts, and moveable assets (which are generally undisclosed, except for pledges over project accounts and insurance).
A disclosed pledge over any hedging receivables that may be owed to the property company from time to time under any hedging arrangements entered into in connection with the project financing.
A subordination agreement, whereby rights and receivables which the property company may owe to its investors or more junior financiers are subordinated to (more senior) bank debt or project financing bonds.
A completion guarantee from the main building contractor(s) involved in the project.
A cost overrun guarantee from investors.
A waiver by building contractors of their builders' liens.
Duty of care agreements from asset managers and fund managers (if the project is developed within a fund).
Contractual protections can include step-in rights (through completion guarantees, duty of care agreements or share pledges), warranties and the pledging of contractual rights.
The latter two are usual in any type and size of project financing transaction. The former may only be required by financiers in the context of financing larger, more complex development projects.
There are various standard forms of contracts and agreements applicable depending on the parties involved and the type and/or nature of the project. These include:
The Uniforme Administratieve Voorwaarden voor de uitvoering van werken 1989 (UAV 1989) (Uniform Administrative Conditions for the Execution of Works), which regulates the relationship between the client and the contractor.
The Uniforme Administratieve Voorwaarden voor Geïntergreerde Contracten 2005 (UAV-GC 2005) (Uniform Administrative Conditions for Integrated Contract Types), which regulates the relationship between the client and the contractor.
The Model Basisovereenkomst, De Nieuwe Regeling 2005 (DNR 2005) (the New Arrangement), which regulates the relationship between the private client/consumer and the contractor.
The Koop-/Aannemingsovereenkomst voor eengezinshuizen met de toepassing van de GIW Garantie- en Waarborgregeling (Purchase/Contract joined with the Application of the GIW Guarantees and the Guarantee Regulation).
Standard forms of contract are available in the public domain.
For international projects involving parties from various jurisdictions, contracts issued by the International Fédération of Consulting Engineers (Federation Internationale des Ingénieurs Conseils) (FIDIC) are also used in the Dutch market. (For further information on FIDIC contracts, see Practice note, FIDIC Forms of Contract (www.practicallaw.com/7-384-6521).)
The contracts previously discussed (see Question 8) are not used for international projects, as they are only relevant to construction projects in The Netherlands.
Typical risks that are (partly) allocated to the contractor include material price escalation, ground conditions and faults in construction and design. Dutch law applies limited restrictions to the contract parties involved in commercial contracts. As a result, customised contracts are common practice, and where no specific arrangements have been made, standard Dutch law regulation applies.
Depending on the situation, risks can be managed in various ways. For instance, clients and advisors often limit their liability in certain circumstances.
Under Dutch law, in commercial contracts, it is possible for the contractor to exclude liability for indirect or consequential loss, loss of business or profits and for force majeure events. Furthermore, there are a number of events where it is possible to exclude or restrict liability.
See Question 11.
Force majeure exclusions are both available and enforceable in The Netherlands.
The way in which these provisions are dealt with will depend on the contract and any agreements that have been made between the parties. It is common practice to have contractual provisions that lay out which party, and to what extent, is responsible for material delays.
The way in which these provisions are dealt with will depend on the contract and any agreements that have been made between the parties. Key material variations can include time and final cost for completion of the project. Under Dutch law it is possible to agree which party is liable, and to what extent they are liable. Sanctions/restrictions can include, for example, financial penalties.
The principal remaining contractual provisions that are negotiated between the parties include:
Division of contractual responsibility.
Definition of "failure to complete contractual duties".
Limitation of liability.
Typically construction professionals are either appointed directly, or following a formal tender process.
Methods of payment are determined by the provisions contained in the contract. In general, there are two types of payment arrangements:
Invoicing on the actual costs incurred.
Fixed price arrangements.
Contractors can secure payment by law, for example by taking a "constructor's lien" or other security over the land or property. Furthermore, contractors can use contractual protections, for example, a payment bond or parent guarantee.
Generally, the main contractor is responsible for the subcontractor. Where a subcontractor does not fulfil its contractual obligations, the main contractor can take any legal action that is possible under Dutch law, and the contract, against the subcontractor. Furthermore, the subcontractor can be held responsible for any damages or losses resulting from its failure to fulfil its obligations.
Various licences are required for different professionals to carry out construction work, for example, to operate as an architect, an engineer or a designer the Bouwrecht in kort bestek is applicable.
Before construction work starts?
During construction work?
There are a wide range of licences and consents needed, depending on the size and nature of the project. First, usually a zoning or environmental plan is needed, or a permit is required in order to deviate from the zoning plan. The decision to issue either a zoning or environmental plan, or a permit to deviate from it, is usually taken by the municipality. The process should take about 26 weeks under the legislation, but in practice it can easily take up to one year. There are, however, legal means to accelerate the process. For example, it is possible to combine certain procedures (such as a zoning plan and an implementation plan) so that both are handled in parallel rather than one after the other. There are many types of (spatially relevant) implementation plans, the most common of which is the "omgevingsvergunning" (environmental permit), which includes (among other things) permissions for construction or environmental issues. Furthermore, water permission may be required, for example, to extract groundwater or discharge surface water. Legal project support, together with close consultation with the municipality/experts, are of paramount importance during major projects.
During a project, and also after its completion, an inspection by a public authority is common practice.
After completion of a project it is possible that further permissions may be required, for example, a fire safety certificate.
For construction activities only one type of insurance is compulsory, namely the WAM insurance (based on the law concerning construction accidents). There are no other compulsory insurances. Parties can choose whether or not to insure themselves. CAR (Construction All Risk) insurance is considered as the most ideal form of insurance for construction activities.
An employer is liable in respect of any accident at work or any occupational illness, except if the employer proves that it fulfilled its duty of care, or if the accident or illness arises as a result of the employee's deliberate intent or intentional reckless behaviour. The employer is also liable for any damage incurred by temporary personnel whilst performing their duties on the premises. The employer can take out an insurance policy against liability for injury or disease incurred by employees in the course of their employment (employee accident insurance), but it is not legally obliged to do so.
Employees are personally liable for personal injuries caused by them to third parties. However, in this instance the employer, instead of the employee, will generally be held liable unless the injury resulted from the employee's deliberate intent or intentional reckless behaviour. Employers generally take out insurance policies to cover against the risks of their employees causing harm to third parties.
Other (non-compulsory) insurances that are common in construction projects are:
General liability insurance for enterprises.
Professional liability insurance.
Fire and storm damage insurance.
Generally, the hiring of employees is not regulated by statute. However, a number of non-governmental organisations have introduced codes and guidelines regarding the information that employers are allowed to ask applicants concerning their capability and suitability for the job. These codes and guidelines mainly relate to the fact that, when hiring employees, employers cannot discriminate on the basis of sex, race, religion, sexual preference and age.
Employers are not currently required by statute to hire a specified proportion (quota) of employees from particular social groups, such as foreign nationals or disabled people. However, the Reintegration of Disabled Employees Act 1998 contains a provision which makes it possible for the government to introduce quotas. In addition, some collective agreements include a contractual obligation to employ a certain quota of particular employees.
Please note that under the provisions of the Medical Examinations Act 1998, recruitment can only be made conditional on a successful medical examination if the job requires that the applicant meets specific medical requirements (either for their own health and safety, or the health and safety of others (for example, bus drivers)).
Nationals from the countries comprising the European Economic Area (EEA) do not require either a work permit or a residence permit to be employed in The Netherlands. However, for nationals of Romania and Bulgaria a work permit currently remains a requirement until 1 January 2012.
Employers wishing to employ non-EEA nationals must comply with the rules laid down in the Employment of Foreign Nationals Act 1995. Work permits from the Ministry of Social Affairs and Employment are, in principle, required for all employees from outside the EEA. The employer, not the employee, must have the work permit. Permits are only granted if the employer can show that it is not possible to fill the vacancy in the usual way through recruitment in The Netherlands or the EEA. Employers who employ foreign nationals without a permit risk criminal prosecution. A work permit is not required for highly skilled migrants who earn a gross annual salary of EUR50,619 or more or, if they are under the age of 30, EUR37,121 or more. These salary amounts apply for 2011 and are indexed every year.
Under the Minimum Wage and Holiday Pay Act 1969 from 1 January 2011, the statutory minimum wage for an employee aged between 23 and 65 is EUR1,424.40 gross per month. It should be noted that overtime payments, incentive payments, performance payments, and so on are not included when calculating the minimum wage.
The Working Hours Act 1996 sets out the requirements relating to maximum weekly hours, minimum rest hours, nightly shifts, breaks, Sunday working, overtime and standby duty. The basic rules provide for a maximum working day of 12 hours and a maximum working week of 60 hours, No more than an average of 55 hours per week can be worked within a period of 13 weeks. No more than an average of 48 hours per week can be worked within a period of 16 weeks. It should be noted that in many industries it is normal to work less than 40 hours per week.
An employer's obligations at the end of a project will depend on the type of contract the employer has with their employees. Employment contracts can be concluded for an indefinite or a fixed period of time.
A fixed-term contract is one in which the employer promises to engage the employee for a fixed period of time. A fixed-term contract can be renewed twice provided that the total duration of the contract does not exceed a period of 36 months. A fixed-term contract ends by operation of law. No redundancy payment or other payments need to be paid at the end of a fixed-term contract. The only payments that must be made are salary until the agreed end date, holidays which have not been taken and accrued holiday allowance.
The permission of the Employee Insurance Agency (UWV Werkbedrijf) is required, in principle, to terminate an indefinite term contract, taking into account the applicable notice period. Instead of applying for a dismissal permit from the UWV Werkbedrijf, the employer can also apply for the contract to be dissolved by the Subdistrict Court (except in the case of collective redundancies). Employers must generally prove that there are sufficient grounds to justify a dismissal. It is generally accepted practice that employees who are dismissed without any contributory fault on their part (for example, redundancy), will be granted a severance payment based on the Subdistrict Court Formula, a mathematical model composed of AxBxC where:
A is the weighted years of service.
B is the gross monthly salary.
C is the correction factor.
This formula is a guideline that has been jointly drawn up by the Subdistrict Courts in The Netherlands. It is not regulated by statute.
The Dutch Working Conditions Act 1998 contains several provisions regarding health and safety at work and the wellbeing of employees. The Act imposes several obligations on the employer with respect to the way in which work is organised, production and work methods and the construction and furnishing of the workplace. The most important obligation contained in the Act is the requirement for employers to have a specific policy in place to promote the health, safety and wellbeing of their employees.
Unless this would be unreasonable, the employer must organise his work and construct and furnish the workplace in such a way as to not negatively impact on the health and safety of the employee. In order to produce a policy suitable for a particular workplace, the employer must first carry out a formal risk assessment. This assessment, which should identify any workplace risks and hazards, together with details of measures to be taken to eliminate or reduce those risks, must be reported yearly to the works council (a body comprising employees within an enterprise which has the task of promoting the interests of the enterprise and its workforce) the employees' representative or, where there is no representative, any interested employee.
All employers are obliged to obtain the expert assistance of an internal or external certified health and safety specialist (Arbodeskundige/Arbodienst). There are several external occupational health and safety services that all provide the same kind of assistance to the employer; however, there can be differences in sector related knowledge.
There are a number of laws which regulate projects' effects on the environment, and the most notable are as follows:
Wet Milieubeheer 1979 (Environmental Act 1979) which regulates general aspects in the field of environmental protection.
Wet Geluidhinder 1979 (Noise Abatement Act 1979), on the prevention or reduction of sound pollution.
Wet Bodembescherming 1986 (Soil Protection Act 1986), concerning the protection of soil.
Flora- en Faunawet 1998 (Flora and Fauna Act 1998), which protects wild plant and animal species.
Natuurbeschermingswet 1998 (Nature Preservation Law 1998), which protects nature and the landscape.
Wet Algemene Bepalingen Omgevingsrecht 2008 (General Provisions of Environmental Law 2008), lays down the authorisations required regarding certain activities that effect the physical environment and the enforcement of regulations in the field of physical environment.
Waterwet 2009 (Water Act 2009), containing regulations regarding the use and management of water systems.
Crisis en herstelwet 2010 (Crisis and Recovery Act 2010), which accelerates the development and implementation of environmental and infrastructure projects.
Under the Kyoto Protocol 1997 The Netherlands agreed to reduce carbon emissions (CO2). In 2012, The Netherlands need to reduce emissions by 6% to bring them back to the level of 1990. The government has set targets for transport, consumers and industry. For certain industries, emissions trading has been implemented as a measure to reduce CO2 emissions. In The Netherlands, emissions trading takes place between companies in heavily polluting industries. This is partly regulated by the Environmental Act 1979 (implementing EU regulations). The Dutch emissions authority (De Nederlandse Emissieautoriteit) is monitoring the trade.
The Dutch Criminal Code contains several prohibitions concerning corrupt business practices and bribery. A distinction can be made between public and commercial bribery, and also between active and passive corruption. The maximum penalty imposed for these offences are:
For public bribery: four years' imprisonment or a fine of EUR76,000 (EUR760,000 in the case of a legal entity).
For private bribery: two years' imprisonment or a fine of EUR76,000 (EUR760,000 in the case of a legal entity).
If agreed in the contract it is possible for the client to simply terminate the contract if the contractor becomes insolvent, and appoint another contractor, unless the contract contains restrictions on this to protect the contractor.
It is common practice to cover this in the contract. If this is not covered in the contract, Dutch law (in particular, Dutch insolvency law) is applicable.
PPPs are common in the Dutch market. We have seen PPPs used particularly in the infrastructure, education and governmental sectors, given the public interest in these sectors.
There is no specific regulatory framework for PPPs in The Netherlands.
If the criteria that are set out in the European/Dutch procurement legislation are fulfilled by the contracting party then the European/Dutch procurement legislation governs the PPP projects as well. In that case the contracting parties are obliged to publish standard forms of PPP projects. In certain cases (for example, if the criteria governing the definition of a contracting party or threshold are not fulfilled) PPP projects are not governed by the European/Dutch procurement legislation. In that case the contracting parties are not obliged to publish standard forms of PPP projects.
European/Dutch procurement legislation demands that contracting authorities publish their public contracts in national and/or international public ways (for example, on the internet) to give economic operators a chance to win a public contract (if that public contract must be tendered under the European/Dutch legislation). Contracting authorities have different procedures to select the lowest price, or the tender that is most economically advantageous from the contracting party's point of view. These procedures are, among other things, the open procedure, the restricted procedure, the negotiated procedure and the competitive dialogue.
Unless parties agree otherwise, a party can always bring a matter to a (Dutch) court (provided that it has jurisdiction).
Parties can choose to deviate from the general rule of bringing disputes to a court and they can agree that a matter must be brought to a group of arbitrators who are chosen by the parties themselves. Likewise, parties can agree that in case of any dispute, the matter will be resolved by a permanent tribunal of arbitrators. Examples of Dutch permanent arbitration tribunals for construction disputes are as follows:
De Raad van Arbitrage voor de Bouw (Council of Arbitration for Construction).
Nederlands Arbitrage Instituut (Dutch Arbitration Institute).
A Dutch court that has jurisdiction can deal with a matter that has been presented to that court. Parties have the opportunity to present their case in a written document, and a judge reviews whether the parties are given the chance to respond to each other. The parties are then invited to plead their case to the court, where the judge questions the parties and can either give further instructions or pronounce a judgment.
Generally, the procedures in the courts of arbitration are equal to court procedures, but they are less formal and less strict. The most important difference is that the arbitrators are people with extensive experience of working within the construction industry.
The most common alternative dispute resolution methods that are used in The Netherlands are:
Arbitration (chosen arbitrators by the parties).
Arbitration by a permanent tribunal of arbitrators.
Parties agree to submit a dispute to an independent expert (group of experts) that gives a binding decision.
A number of tax issues can be relevant to projects. With regards to real estate in particular, VAT and transfer taxes can be charged. It is recommended that expert tax advice is sought before embarking on a project.
It is recommended that expert tax advice is sought to ensure the most tax-efficient treatment for a particular project.
There are no specific requirements for international contractors or construction professionals.
Environmental law in The Netherlands is frequently changing and fundamental changes are to be expected in the future. Concrete plans for reform, however, are not presently confirmed.
Qualified. The Netherlands, 1997
Areas of practice. Construction law; property development; architects law; arbitration law and (in general) real-estate related law of obligations.
Qualified. The Netherlands, 2006
Areas of practice. Employment law; litigation.
Qualified. The Netherlands, 2008
Areas of practice. Administrative law; environmental law; spatial planning; project development.