A Q&A guide to construction and projects law in Austria.
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.
For a full list of recommended construction and projects law firms and lawyers in Austria, please visit PLC Which lawyer?
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 taken time to affect the Austrian construction market. In the last two years, the construction industry was able to absorb the shock by finishing ongoing projects in home and office construction. 2011, however, is expected to be the greatest challenge the construction industry has ever faced.
The federal government, as well as local governments and communities, have down-sized budgets, with far-reaching consequences, particularly for the road construction industry. As a result, a large number of road construction projects will not be realised in time.
Energy-saving investments and housing sanitation are encouraged by tax benefits and public loans. Under Directive 2010/31/EU on the energy performance of buildings (EPBD), energy passes (providing information about the energy consumption of a house) are obligatory for newly constructed houses. Economic proposals to increase sustainable, energy-efficient construction and renovation activities are also being widely discussed.
Innovation activity in the construction sector has significantly increased due to the public pressure to fulfil new requirements based on cost-effectiveness considerations. Construction companies demand taxation privileges for innovation-related expenses.
The following significant construction projects are being developed or are in the process of planning:
The former airfield Aspern near Vienna is being turned into a modern part of Vienna named Seestadt Aspern with a centrally located lake and connection to a local subway.
Infrastructure projects concerning Austrian railways are being developed around the new Vienna main station, including shopping areas and office buildings.
The Brennerbasistunnel, a collaborative project with Italy to construct the second longest railway tunnel in the world.
The Semmeringbasistunnel, an important tunnel construction project in connection with the construction of a high performance railway track section leading from Vienna to Spielfeld/Straß in Styria.
Skyscraper DC Tower Vienna designed by French star architect Dominique Perrault.
The main parties typically involved in a construction project are:
Principal.
General contractor.
Subcontractors.
Architects.
Project managers and project controllers
Construction supervision authority.
Consulting engineers.
Other parties can also support a project with their knowledge in a special area (for example, acoustics).
Principals are either public bodies (the state) or legal persons under private law (for example, a GmbH). Public bodies must follow procurement regulations to contract with general contractors. Public bodies must comply with the following public procurement regulations:
Law on Federal Public Procurement 2006 (including federal legal protection) (Bundesvergabegesetz 2006).
Nine local laws of the federal provinces concerning legal protection in procurement.
In larger projects, general contractors commonly come together through an association, called an ARGE (Arbeitsgemeinschaft) (see Question 4). The general contractor is commissioned to do all the works required, either by himself or through subcontractors, and ensures compliance. The project manager and the construction supervision authority supervise the construction works and report to the principal.
The principal and the general contractor are free to decide on contractual terms, subject to the provisions of certain laws and regulations (concerning, for example, building safety). There are several types of procurement arrangement available between the main parties:
Turnkey contracts (where the works are constructed and delivered ready to use).
Award of the contract to a general contractor in a competitive process.
Direct engagement (these are only used in arrangements up to a certain value).
In any project with foreign participation, the applicable law and place of jurisdiction should be expressly agreed (using a choice-of-forum clause).
Cross-border projects are often based on an agreement following the construction contract terms drafted by the International Federation of Consulting Engineers (Fédération International d’Ingénieurs-Conseils) (FIDIC). (For more information, see Practice note, FIDIC Forms of Contract (www.practicallaw.com/7-384-6521).)
If a special purpose project company is being established, it is usually structured as:
A private limited company (Gesellschaft mit beschränkter Haftung).
A limited partnership (GmbH & Co KG).
A stock corporation (Aktiengesellschaft).
Any other civil law partnerships without legal personality such as an association or ARGE (see Question 2).
Public Private Partnerships (PPPs) are created either as a concession, an operator or are based on a co-operation model.
Austria is a very open and well-developed market economy and offers a solid environment for foreign investment. There is no discrimination between domestic and foreign companies or between branches and subsidiaries. Foreign entities have the same legal obligations as domestic entities.
Foreign companies commonly set up their operations in Austria by forming an alliance with Austrian partners in order to simplify the process of setting up a project.
Financing mechanisms depend on the nature and size of the project. Small scale projects are commonly financed by senior debt and equity, while larger projects require a more diversified financial mix of senior debt, subordinated shareholder loans and equity. Mezzanine loans are often used by developers to secure supplementary financing for development projects, or by established companies during a period of growth and expansion.
For further information see, Practice note, Understanding Project Finance Construction Contracts (www.practicallaw.com/1-422-1870).
It is very common to install first-ranking mortgages or land charges on property to secure financing, or at least part of it. This primary security arrangement is usually accompanied by:
Company guarantees.
Liens on shares, interests or bank accounts.
Rights regarding the amounts to be received by the builder (rent receivables and sales receivables assignments).
Insurance assignments.
Security transfer of inventory (for hotels).
In more complex financing transactions (for example, leasing constructions), funders often acquire the ownership, or a right in rem, on the building to be erected.
Most funding agreements provide step-in rights, which allow the funder to take over the rights and obligations of the builder in the event that the builder defaults on his payments. Banks in particular require these kinds of agreements in the form of parent company guarantees, comfort letters and/or the assignment of all project-related warranties.
Subordination and inter-creditor agreements can be found in connection with large and complex projects. Wherever bank syndicates are involved, separate syndication and security pool arrangements are quite common.
In Austria an immense number of standard contract forms (ÖNORMen) are distributed by the "Austrian Standards Institute", which is a neutral, independent and private service association providing public services. Although its activity is based on federal law (Standardisation Act of 1971) (Normengesetz 1971) the Austrian Standards Institute is not actually vested with any public authority.
Nevertheless, under § 97, section 2, Public Procurement Law 2006 (Bundesvergabegesetz 2006) public principals must use generalised performance specifications or ÖNORMen, as far as they exist in a certain field.
Generalised performance specifications are published and regularly updated by the Austrian Federal Ministry of Economy, Family and Youth.
ÖNORMen and generalised performance specifications are primarily used in connection with:
Structural engineering.
Domestic engineering.
River construction.
Transportation infrastructure.
Generally, the most important ÖNORMen concerning construction projects are the ÖNORM A 2063 (which regulates the electronic exchange of performance specification data) and the ÖNORM B 2110 (which contains standard business terms for construction projects).
As a member of the European Committee for Standardisation (Comité Européen de Normalisation) (CEN) as well as the International Organisation for Standardization (ISO), the Austrian Standards Institute is able to involve its experts in the development process of both European and international standards.
For construction sites located in Austria, the Austrian standards (see Question 8), the competent court of jurisdiction and the applicable law are usually contractually agreed upon.
International contracts within the EU must also meet the European Directives on construction and engineering contracts as implemented into Austrian law, for example, Directive 89/106/EEC on the approximation of laws relating to construction projects, Directive 2006/42/EC on machinery, and the EPBD (see Question 1).
With cross-border projects, contracts issued by the FIDIC are also popular.
For further information on FIDIC see Practice note, FIDIC Forms of Contract (www.practicallaw.com/7-384-6521).
Under § 1168 of the General Civil Code 1812 (amended in 2010) the risk concerning frustration of the construction contract is initially allocated to the general contractor, provided that the reason for the frustration cannot be allocated to the principal's side. The risk is then transferred to the principal once the project is complete and the principal has accepted the work as completed.
Under § 1168a of the General Civil Code the risk of loss of the material used for the construction is borne by the person who supplied it. If the principal supplies the material, the contractor is only liable for any damage caused by his errors. In practice, this risk is often covered by insurance.
As the risk of the principal's insolvency is also allocated to the general contractor, a mandatory security obligation in the general contractor's favour in construction contracts was introduced in 2007 under § 1170b of the General Civil Code, giving him the right to demand (at most) 20% of the agreed payment in advance to secure his interests. This security payment can rise up to 40%, if the structure is to be erected within three months.
To reduce the insolvency risk, construction contracts also often provide for further advance payments at different stages of the construction in progress.
While parties enjoy to a great extent freedom to negotiate private contracts, public principals must use certain standard forms of construction contracts published by the Austrian Standards Institute (see Question 8). Of practical importance are, for example, the standard forms VD 307, 313 and 314, which contain general business terms and conditions concerning construction assignments by the City of Vienna.
As the General Civil Code provides certain mandatory rights for the principal in the case of defects, the exclusion of liability is restricted under Austrian law.
While an exemption clause for negligence can be effectively stipulated, it is not possible to exclude liability for malicious intent.
In the case of errors, the principal is primarily entitled to demand improvement and, then, if improvement fails, to demand a reduction of payment or, where the error is not minor, to withdraw from the contract (§§ 922 to 933b, General Civil Code).
If the contract was culpably breached by the general contractor, the principal can also demand indemnification from the general contractor (the general contractor's obligation can only be waived for negligence, not for malice (see above)).
Exemption clauses in general must be clearly and unambiguously drafted, otherwise they will be interpreted to the detriment of the party in whose favour the clause has been added.
In general, each party to a contract is liable for the damage it culpably causes without any limitation.
A cap on liability can only be effectively agreed with regard to damages not relating to personal injuries. Liability for negligence in connection with these damages can also be insured (see Question 13) and subsequently limited to the amount covered by insurance.
It is not uncommon for caps on liability to be agreed upon. This is also reflected in the ÖNORMen (see Question 8). While the ÖNORMen do not contain a cap on liability where the contractor has acted in a grossly negligent manner, in the case of simple negligence, the ÖNORMen contain specific cap amounts.
As the general contractor bears the risk of incidental loss of (his own) material and the built structure before presentation (see Question 10), force majeure exclusions generally cover the occurrence of exceptional events beyond the general contractor's control that damage or destroy his works or his material.
If a third party or the principal supplies the material, the general contractor is only liable for damage caused by his own errors: the risk of force majeure regarding the materials is therefore allocated to the principal.
It is common to take out special insurance for unavoidable and exceptional events (contractors' insurance) (Bauleistungsversicherung) covering typical force majeure (such as floods or storms), vandalism, negligence and construction or material errors.
Construction contracts tend to set out precise presentation dates, which apply to both the contractor and the principal.
Adherence to these dates is often backed up by contract penalties or step-in rights for the principal, allowing him to carry out certain works either by himself or through another contractor.
If the contractor fails to finish his work within an appropriate period of time after the missed presentation date agreed in the contract, the principal can also withdraw from the contract (§ 918, General Civil Code).
If the principal suffers any damage from a delay culpably caused by the general contractor, he is, of course, also entitled to demand proper indemnification.
The freedom of contract principle also applies to the issue of what constitutes a material variation and how this should be dealt with in accordance with the parties' obligations. Typically, for changes wanted by the principal, the general contractor will receive additional payment and additional time for performance. The situation is different, however, where the need for additional work is based on the general contractor's poor performance, in which case the contractor must still uphold the originally agreed performance period without obtaining additional payment.
As well as time limits and liabilities, prices and the scope of work are usually heavily negotiated. The general contractor will usually try to precisely specify his performance duties within the contract, so that he can demand further payment for necessary supplements not covered by the contractual performance description. The principal, on the other hand, will try to incorporate merely functional specifications so that he does not have to pay for additional work.
On price, all kinds of variations are possible and this issue is usually heavily negotiated. The most common pricing concepts are:
Lump sum agreements.
Reassessment of prices.
Day rates.
Price revision clauses.
Due to recent changes to prices of metals, oil, fuel and its derivatives, price revision clauses are increasingly negotiated by the parties.
As a rule, architects and general contractors conclude a contract with the relevant principal (or the awarding authority). However, if the architect is authorised and holds a power of attorney, the architect may also arrange the orders and contractual relationships with the general contractor, producers of construction materials or individual experts (statisticians, in-house technicians, surveying technicians and so on) on the principal's behalf (that is, in the principal's name and for the principal's account). Subcontractors, however, conclude their contracts with the general contractor (see Question 19).
The general contractor and the architect must provide their services in line with the scope of services agreed with the principal. In providing their services, both the general contractor and the architect must comply with statutory provisions (for example, defects liability), instructions given by public authorities and also with the generally accepted codes of practice (in particular, ÖNORMen; see Question 8). This also applies to the subcontractors commissioned by the general contractor. The general contractor is liable to the principal (or the awarding authority) for the subcontractor's defective performance.
Construction contracts are either:
Contracts based on a fixed rate per unit.
Lump sum contracts.
A contract based on a fixed rate per unit is based on a bill of quantities which consists of specific items (for example, technically and economically unified partial services). After completion of all works, the fixed rates per unit agreed in the contract are multiplied by the quantities effectively used. The purpose of a contract based on a fixed rate per unit is that there is a close connection between performance and payment.
In the case of lump sum contracts, the price is a fixed flat fee amount. Quantities are not invoiced.
To secure the claims of one contractual party, the parties can agree on the payment of a deposit to cover the event where one party fails to comply with contractually agreed upon obligations.
A guarantee can also take the form of an amount retained to avoid overpayment (retention of invoice on account) (Deckungsrücklass). The amount is retained to avoid overpayment where there are partial invoices given by the general contractor. The amount retained is generally 7% of the relevant amount invoiced (see ÖNORM B 2110) which is deducted from the payable invoice, unless the principal accepts other forms of guarantee. The amount retained to avoid overpayment becomes due for payment on payment of the final account.
In addition, the parties can agree on the retention of an amount to cover any potential defects liability (guarantee retention) (Haftungsrücklass). The amount serves as security in the instance that, for example, the general contractor fails to comply with obligations it may have due to warranty regulations. Unless the contracting parties agree otherwise, the amount retained for covering any potential defects liability is 3% of the total price to be paid (see ÖNORM B 2110). The amount is retained when paying the relevant partial or final invoice, unless the principal accepts other forms of guarantee. (ÖNORM B 2110 includes special regulations on pricing, invoicing and the provision of collateral (see Question 8).)
The relationship between principal, general contractor and subcontractor is often described as a triangle. It is, however, important to note that principal and subcontractor are not usually directly linked by contract.
Rights and obligations are generally limited to the direct parties to a contract. The subcontractor agreement (the contract between the general contractor and the subcontractor) is not subject to particular statutory limitations. The general contractor concludes the contract with the subcontractor in its own name and for its own account, and not as a representative of the principal (or the awarding authority). In practice, all technical, economic and legal conditions and risks concerning services provided by subcontractors are included in the general contractor agreement as well as the subcontractor agreement.
Any subcontractor that provides defective performance is liable to the general contractor for defects liability and, in the case of fault, also for damages. The general contractor, in turn, is liable to the principal for its subcontractor.
The subcontractor's claim for payment exists only against the general contractor. From time to time, however, contracts include clauses providing for direct payment (either at the request of the principal or the subcontractor). These clauses provide that the payable amounts invoiced by the subcontractor will be paid directly by the principal to the subcontractor under certain circumstances.
For further information, see Practice note, FIDIC: Conditions of Subcontract (www.practicallaw.com/7-503-3756).
Construction and significant remodelling require a building permit. The conditions for obtaining building permits vary in the different federal provinces; the building permits must correspond to the (also divergent) regional planning laws of the respective provinces. Commercial plants also require a separate permit (Betriebsanlagengenehmigung). Construction projects of different sizes also require environmental impact assessments. Usually, commercial plants are the responsibility of the municipalities and of the administrative authorities at district level, while the provincial governments are responsible for environmental impact assessments.
Builders must have a business licence, and architects require certification as a civil engineer (Ziviltechnikerbefugnis).
Before construction work starts?
During construction work?
On completion?
Before work is started, a building permit must be obtained and, where required, an environmental impact assessment must be carried out. During the construction phase, the commercial plant permit (Betriebsanlagengenehmigung) can be obtained under trade law. Before a completed plant can be put into operation, a notification of completion must be sent to the competent administrative authorities at district level and, in some cases, acceptance of the works must be obtained from the competent authorities.
It is common to take out contractors' insurance (see Question 13).
Although there is no statutory obligation to take out liability insurance for principals in Austria, this insurance is taken out in almost all cases, and should be included because of the principal's liability risk. The only statutory obligation to take out insurance that will cover construction sites is the general obligation to take out insurance for the protection of employees (from accidents at work and occupational diseases) under the General Social Insurance Act (Allgemeines Sozialversicherungsgesetz) (ASVG).
There are no specific hiring requirements for domestic employees.
Any restrictions on the establishment of nationals of a member state in the territory of another member state are prohibited (Article 45, Treaty on the Functioning of the European Union (TFEU)). As a result, all EU citizens can live and work in any member state under the conditions laid down for that member state's own nationals. Generally, EU citizens do not require any work or residence permit. This also applies for nationals of the European Economic Area (EEA) and Switzerland.
Restrictions apply for nationals of certain new EU member countries (Estonia, Latvia, Lithuania, Poland, Slovakia, Czech Republic, Hungary, Bulgaria and Romania). Nationals of these member states do not require either a visa to enter a member state or a residence permit. However, these nationals must have a valid work permit under the Act on Employment of Foreign Nationals 1975 (amended in 2009) (Ausländerbeschäftigungsgesetz) to be legally employed in Austria. These restrictions apply until May 2011 (or until January 2014 for Bulgaria and Romania).
Generally, nationals of non-EEA countries must have a visa to be entitled to enter a member state. Additionally, a residence permit (if the non-EEA national resides within the federal territory for a period exceeding six months) and a work permit are required to be legally employed in Austria.
The work permit can only be applied for by the prospective employer of the employee in question.
Austrian labour laws provide for minimum standard working conditions on:
Remuneration.
Vacation. This is generally 25 working days per year, though in connection with construction workers special provisions may apply; for example, the Construction Workers Vacation and Severance Payment Act 1987 (amended in 2010) (Bauarbeiter-Urlaubs- und Abfertigungsgesetz).
Working hours (generally 40 hours a week and eight hours a day; various collective bargaining agreements provide for a shorter week, for example, 38.5 hours).
Working at night, on Sundays and on public holidays (Working Hours Act 2007 (amended in 2010) (Arbeitszeitgesetz) and Hours of Rest Act 1983 (amended in 2010) (Arbeitsruhegesetz)).
Employee protection under the Employee Protection Act 2001 (amended in 2010) (Arbeitsschutzgesetz).
Collective bargaining agreements and shop agreements can provide further provisions regarding working conditions. Collective bargaining agreements are concluded between trade unions and employer associations. Shop agreements are concluded by the works council and the employer for each individual enterprise.
Employment is independent of the respective construction project. Therefore, employment continues after the end of a construction project. However, employment can be limited either in time or by specific grounds for dismissal. Fixed-term employment ends either after the agreed time has expired or the purpose of the employment has been fulfilled (for example, if the construction works on a building have been completed).
However, there can be situations where an employment relationship does not end by proper notice, but ends immediately due to dismissal or resignation without compliance with any periods of notice. If the employee was subject to dismissal without sufficient statutory cause, or if he prematurely resigns based on good cause acknowledged by law, he is entitled to compensation for dismissal (Kündigungsentschädigung). The same applies for untimely notice.
Special regulations on termination (for example, terms of notice) can be subject to collective bargaining agreements.
Further, an employee can be entitled to a severance payment. In connection with constructional works, special provisions concerning the payment of severance may apply, for example, the Construction Workers Vacation and Severance Payment Act 1987 (see Question 24).
The relevant legislation on health and safety applying to construction projects is:
Employee Protection Act 2001 (amended in 2010) (Arbeitsschutzgesetz) concerning safety and health protection.
Federal Act on Co-ordination of Construction Working 2007 (Bauarbeitenkoordinationsgesetz).
Ordinance on Protection of Construction Workers 1994 (amended in 2011) (Bauarbeiterschutzverordnung); this contains special provisions concerning safety and health protection with regard to construction workers.
Ordinance on Handling of Work Equipment 2000 (amended in 2010) (Arbeitsmittelverordnung) concerning safety measures such as handling of machines, tools and so on.
In addition, collective bargaining agreements can contain special health and safety requirements.
The Federal Act on Co-ordination of Construction Working provides that larger construction works must be reported to the competent authority and, if several contractors work at a site at the same time, a construction expert (Baufachmann) must be appointed. Further, a co-ordination plan must be established setting out the requirements concerning safety, health security and particularly dangerous work.
Any employer contravening the provisions of the Work Protection Act (and ordinances based on this federal Act) or the Federal Act on Co-ordination of Construction Working commits an administrative offence subject to punishment by a fine of at least EUR145 up to EUR7,260, or in the case of further breaches of the law, a fine of up to EUR14,530 (as at 1 April 2011, US$1 was about EUR0.7). Fines are imposed cumulatively on any breach of the law.
The Emission Control Act - Air 1997 (amended in 2010) (Immissionsschutzgesetz − Luft) governs emission monitoring (emission concerns the environmental concentration of a pollutant), lays down controls and measures and defines threshold, alarm and target values. Regulations relating to the Emission Control Act - Air specify threshold values as well as areas which warrant a particularly high level of protection due to an increased emission load. Certain emissions and other breaches are prosecuted under criminal law.
The aim of these provisions is to provide long-term protection from harmful and intolerable air pollutants for human health, animal and plant life, to reduce emissions as a precautionary measure and to maintain the best possible air quality that is compatible with sustainable development.
Bodies of water are generally protected by the Water Rights Act of 1959 (Wasserrechtsgesetz 1959). This Act governs use, pollution control, protection, maintenance, preservation, water management obligations, enforceable rights, supervision and the elements of criminal offences concerning bodies of water.
The Waste Management Act of 2002 (Abfallwirtschaftsgesetz 2002) provides that waste management must be based on the precautionary principle, and sustainability, for humans, animals and plant life (see above, Air). To provide for transparency with regard to environmentally sound collection, storage, transport and treatment of waste, the regulation on waste documentation (Abfallnachweisverordnung) defines the type and form of records, and the reporting and documentation requirements. For the protection of the public interest, the Ordinance on the Classification of Hazardous Waste 1997 (amended in 2000) (Festsetzungsverordnung gefährlicher Abfälle) defines which types of waste are classified as hazardous, and which types of hazardous waste are classified as problematic substances. Based on this classification, waste must be treated in line with either the Waste Management Act 2002 or be disposed of in line with the Ordinance on Waste Sites 2008 (amended in 2010) (Deponieverordnung).
Private or public projects that may have a significant impact on the environment must have an environmental impact assessment. The environmental impact assessment takes place in the course of a comprehensive approval procedure that involves the public. The Environmental Impact Assessment Act of 2000 (Umweltverträglichkeitsprüfungsgesetz 2000) contains the pertinent statutory provisions for Austria.
All of the above provisions aim at protecting the environment and promoting sustainable development. Sustainability is also the objective of many other provisions and an important criterion for decisions in project approval procedures. Further pertinent statutory provisions include:
The Federal Act on Environmental Liability 2009 (Bundes-Umwelthaftungsgesetz), which governs measures for the avoidance of, and decontamination in connection with, environmental damages based on the polluter pays principle.
The Environmental Support Act 1993 (amended in 2010) (Umweltförderungsgesetz), which provides for project subsidies that offer incentives for the development and improvement of environmentally friendly, raw material, energy-saving technologies and project implementations.
The Environmental Monitoring Act 1998 (amended in 2002) (Umweltkontrollgesetz), which governs the regular inspection of projects which have already been implemented.
New buildings and renovations of buildings must comply with the ÖNORMen (see Question 8). The ÖNORMen are Austrian standards that have been laid down to comply with European Directives and international Conventions (for example, the Framework Convention on Climate Change (Kyoto Protocol)). Further, after building or renovation, an energy certificate (Energieausweis) must be presented under the Act on the Presentation of Energy Certificates 2006 (Energieausweisvorlagegesetz), which must state how much CO2/m2 will be emitted. The Act on Construction Products 1997 (amended in 2001) (Bauproduktegesetz) also provides for standards in the products to be used.
As an incentive to minimise CO2 emissions, the federal government and the provincial governments, based on their agreement on measures in the building sector for the purpose of reducing greenhouse gas emissions, offer subsidies for building and renovating buildings under certain circumstances.
To achieve the objectives of the Kyoto Protocol, the Act on Emission Certificates 2004 (amended in 2010) (Emissionszertifikategesetz) regulates CO2 reduction in the industrial sector. This federal Act aims to create a system for trading greenhouse gas emission certificates, to promote the reduction of greenhouse gas emission in a cost-efficient and economically efficient way.
The Austrian Criminal Code 1974 (amended in 2010) (Strafgesetzbuch) (StGB) imposes sanctions for corrupt practices and differentiates between offences involving civil servants and other public officers and offences involving employees of companies. Sections 304 et seq of the Criminal Code define punishable events where the offender is a public officer (in particular a civil servant). Punishment is imposed on both the public officer who demands, accepts, or accepts the promise of, an advantage for an act or omission in line with, or contrary to, their duty, and the person who offers, promises or grants that advantage. Sentences of up to ten years can be imposed.
Sections 168c and 168d of the Criminal Code define the criminal nature of the acceptance of gifts by, and the bribing of, employees or agents for an act or omission contrary to their duty. The offender can be any employee or agent of a company. Sentences of up to three years can be imposed.
If criminal proceedings are opened, it is possible for the injured party to join the proceedings as a private party to claim civil damages (Privatbeteiligter) and for the criminal court to oblige the convicted party to reimburse the damage. Such an order qualifies as a civil law judgment and is enforceable. Alternatively, the injured party can also assert claims by filing a civil law complaint. If corrupt transactions are legally punished, it is safe to assume that, in many cases, the conclusion of the relevant transaction is ineffective or contestable.
Generally, a principal (or awarding authority) will adhere to the contract in the event of the insolvency of the property developer (Bauträger), since the principal may have potential claims under that contract. However, the trustee in insolvency, on the opening of insolvency proceedings, may withdraw from the contract with the property developer (Bauträgervertrag) under certain conditions. This does not render the contract invalid, but only leads to the discontinuation of its performance.
Once there are no longer claims for performance or correction, amounts will be retained for covering any potential defects liability (Haftrücklass) in case of possible occurrence of defects within the defects liability period. These amounts can be retained, after the trustee in insolvency has withdrawn from the contract, up until expiration of the retention period.
To develop the best possible modern infrastructure with limited financial resources, the first PPP projects have been implemented in Austria in recent years. However, as a result of the global financial crisis and current political priorities, the implementation of PPP projects is currently viewed with greater reluctance.
Generally, PPPs can be formed in all areas where public sector entities are active. This, however, excludes those areas that are exclusively reserved to administrative sovereign jurisdiction (Hoheitsverwaltung) and that cannot be outsourced to private law entities (beliehene Unternehmen). Usually, the areas of activity of PPPs are broken down by economic sectors. In terms of sectors, PPPs in Austria are primarily implemented and considered in the following areas:
Railway and road infrastructure.
Hospitals.
Waste management.
Disposal of waste water.
Each PPP has its own structure and mechanics, which are contained in complex contractual provisions. So far, no specific type has developed in Austria, and no standardised PPPs have been created in Austria. Although there are no separate statutory provisions on PPPs, the existing EU Directives and national laws provide a sufficient framework for PPP projects. In this context, the following elements must primarily be taken into account:
Tax framework.
Provisions of labour and company law.
Prohibition of state aid under Article 107 of the TFEU.
Austrian and European competition law.
Public procurement law, such as the Federal Act on Public Procurement 2006 (Bundesvergabegesetz 2006) and procurement Directives, and supervisory and control measures (for example, with regard to railways and hospitals).
The main role in a PPP project is most often assumed by a public law principal. This entity is subject to the provisions of public procurement law if it acts as a recipient of deliverables and performance. If, on the other hand, the public law entity offers its own deliverables and performance to third parties (for example, in the course of a privatisation of public assets), it is not generally subject to public procurement law as it amounts to a selling situation.
In most cases, however, there is no selling situation when PPP models are implemented, but a typical procurement situation in which the public law principal acquires goods and services on the free market. Depending on the consideration for the performance received, there may be an order (where the consideration is money, for example, building, service or supply contract), or a concession (right of use as consideration, for example, construction or services concession). The Austrian Act on Public Procurement 2006 provides for numerous regulations and procurement procedures for the awarding of contracts and concessions.
Just as there is no generally applicable PPP model, there is also no generally applicable procurement model for its realisation. In connection with the financing and realisation of large infrastructure projects, concession solutions are preferred (for example, construction concessions in the framework of an operator model (Betreibermodell)).
In that case there are two phases:
The construction concession is granted. The grantor of the concession decides on the choice of the type of the award procedure (open procedure, closed procedure, negotiation procedure), the determination of the aptness criteria to be fulfilled by applicants and the decisive criteria for awarding the concession. In any case, the general awarding principles of transparency and non-discrimination must be taken into account.
Contracts are awarded by the (construction) concessioner itself. One must distinguish between the awarding of contracts by a private concessioner that is generally not subject to the provisions of public procurement law, and a concessioner that itself is a public awarding authority. While the public law concessioner is bound by public procurement law, private concessioners are most often contractually bound to compliance with minimum standards under procurement law by the grantor of the concession.
Generally, each PPP has its own structure and mechanics, which are contained in complex contractual provisions. Responsibilities, risks and financing must be laid down in the framework of a contract (or several contracts) and are divided between the partners. There are no standard procedures or contracts. Rather, each PPP requires the drafting of several contracts specifically tailored to the relevant project.
For information on the legal framework, see Question 32.
Disputes can be settled by way of:
Court proceedings.
Arbitration proceedings.
Expert determination.
Conciliation procedure.
Mediation.
Particularly in the construction sector, parties increasingly opt for arbitration to settle both local and international disputes. Arbitral tribunals are particularly attractive compared to state courts mainly due to swift proceedings, lower costs and flexibility. It is important to distinguish between ad hoc arbitral tribunals formed by the parties for a specific legal dispute without the help of any external entity and permanent or institutional arbitral courts.
The most important arbitral institution in Austria is the independent and permanent Vienna International Arbitral Centre (VIAC), which was set up within the Austrian Federal Economic Chamber. The VIAC offers its services for settling international disputes, using a rather broad definition of "international". For instance, a dispute already qualifies as international if one of two domestic companies involved is a subsidiary of a foreign company. All arbitral proceedings before the VIAC are tailored to the requirements of the individual parties and meet the highest quality criteria.
The permanent arbitral courts with the economic chambers of the federal provinces are prominent in relation to the settlement of national disputes.
An arbitral court that has been specifically set up for disputes in the construction industry is the construction arbitral court (Bauschiedsgericht) within the Austrian Standards Institute (ASI). It offers the swift and efficient resolution of disputes and differences of opinion in construction work cases.
The parties can opt for arbitration proceedings instead of court proceedings. The arbitral award passed by an arbitral court is accepted and executed by state courts; the arbitral award therefore has the same effect as a final court order. The parties can agree to resort to an arbitral court when they establish their business relationship, or after the dispute arises.
The Austrian Code of Civil Procedure (Österreichische Zivilprozessordnung) (ZPO) includes procedural instructions for carrying out arbitral proceedings (§§ 577 et seq). These instructions comply with the provisions of the UNCITRAL Model Law on International Commercial Arbitration 1985. The parties may, however, agree on different procedural instructions for individual arbitral proceedings.
The Vienna International Arbitral Centre (VIAC) has its own rules of arbitration and conciliation (Vienna Rules).
The activity of the ASI construction arbitral court is defined in the ASI's rules ONR 22110, ONR 22112 and ONR 22113.
Experts from various (technical) areas are most often called in by the parties to formulate an expert determination if the parties have generally agreed on the resolution of the dispute but wish to obtain clarification on individual (technical) issues. The particular approach is agreed by the parties for each individual case. The parties must also determine the expert's task, the questions to be answered by the expert and the costs. The outcome of the expert determination is binding on the parties and settles the factual dispute with final effect.
A conciliator cannot settle a dispute between parties with binding effect. Its tasks are limited to proposing solutions to the parties that might end the dispute. The conciliator takes into account the interests of all the parties, as well as the legal and factual situation. A conciliator has to be appointed by all parties by mutual agreement.
Mediation is a structured procedure for constructive conflict resolution in which the parties participate voluntarily. The aim for the parties, with the support of the mediator, is to reach a joint agreement which corresponds to their interests and needs. The mediator does not take any decisions concerning the conflict but merely guides the process, ensures fairness, and formulates possible solutions together with the parties.
In addition to the generally applicable VAT of 20% on goods and services provided by companies, the following must be taken into particular account in connection with construction projects:
Land acquisition tax applicable to the acquisition of domestic plots of land. It generally amounts to 3.5% (2% in the case of transactions among relatives or spouses) of the paid price or on the actual current value of the plot of land.
Real property tax payable by the owner of the plot of land. The tax rate varies in the different federal provinces (average: 0.8%).
Tax on land value (Bodenwertabgabe), which is levied in addition to the real property tax for non-built plots of land and amounts to 1% per year of the assessed value of the property (the first EUR14,600 is exempt).
Registration charge for entry in the land register of EUR45, plus a charge of 1% of the purchase price.
Currently, legal fees can be reduced by using Electronic Legal Communication (a paperless electronic communications system). Moreover, the following are exempt from land acquisition tax:
In the case of measures taken by public authorities to improve building plots: the acquisition of a plot of land under the provisions applicable to the improvement of building plots.
The transfer of plots of land on the basis of a donation under the Foundation Contribution Tax Act 2008 (amended in 2011) (Stiftungseingangssteuergesetz).
There are various restrictions on property dealings in the federal provinces that apply to foreign natural persons. However, persons from EU states are often accorded the same treatment as Austrian citizens.
The applicable labour law and social law framework regarding the employment of foreigners must be taken into account.
Currently, there are initiatives to harmonise the various construction regulations of the different federal provinces, and to introduce provisions which will make it possible to do without formal approval in certain cases, which will then only require mere notifications of the relevant construction project under simplified procedures (these simplified procedures are, in part, already in place). The Act on Environmental Impact Assessment 2000 (amended in 2009) (Umweltverträglichkeitsprüfungsgesetz), which governs different major construction projects, is regularly subject to amendment.
Main activities. STRABAG is the biggest Austrian construction company and carries out projects all over the world.
Main activities. These authorities are responsible for giving out building permits and demolition orders at municipal district level.
W www.wien.gv.at/wohnen/baupolizei/
Main activities. This organisation provides various standard forms of construction contracts.
Main activities. This organisation monitors the professional conduct of freelance civil engineers.
Main activities. This federal ministry awards the title of "Ziviltechniker" (freelance civil engineer).
T +43 1 537 70
F +43 1 537 70 70
E office@fwp.at
W www.fwp.at
Qualified. Austria, 1999
Areas of practice. M&A; company law; real estate; competition and procurement law; public sector.
Recent transactions
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T +43 1 537 70
F +43 1 537 70 70
E office@fwp.at
W www.fwp.at
Qualified. Austria, 2010
Areas of practice. M&A; company law; real estate; competition and procurement law; public sector.
Recent transactions
T +43 1 537 70
F +43 1 537 70 70
E office@fwp.at
W www.fwp.at
Qualified. Austria, 2010
Areas of practice. M&A; company law; real estate; competition and procurement law; public sector.
Recent transactions
T +43 1 537 70
F +43 1 537 70 70
E office@fwp.at
W www.fwp.at
Qualified. Austria, 2009
Areas of practice. M&A; company law; real estate; competition and procurement law; public sector.
Recent transactions
