Why does the customer have the right to demand documents from the contractor?
The supplier is obliged to transfer to the client, along with the result, information that relates to the operation of the constructed property or other subject of the contract. This is necessary in two cases: if the transfer is provided for by a contract or the nature of the information is such that without it it is impossible to use the result of the work.
Most often, documents are drawn up during or immediately after the work is completed. As a rule, their list and procedure for registration are specified in departmental by-laws. For example, Rostechnadzor indicates as-built geodetic diagrams, sets of working drawings, and acts of laying out the axes of a capital construction project on the ground as executive documentation.
Correctly drawing up documents is necessary not only for putting a facility into operation or inspection by regulatory authorities, but also in the event of a legal dispute regarding the volume and quality of work performed.
Courts unanimously believe that as-built documentation is the main evidence of the actual performance of work. The courts do not have a consensus on whether the customer should pay if the contractor has not handed over the documents to him.
How can a customer reduce costs if the court forced him to pay?
Most courts believe that the client is obliged to pay for the work accepted under the acceptance certificate, even if he was not given the execution documentation. Exceptions - if the client proves that the construction project cannot be used for its intended purpose without documents.
In such situations, the courts note that the customer can file an independent claim to obtain documents from the contractor. He also has the right to use one of four ways to compensate for losses.
- Ask for a proportionate reduction in the price of the work
- Do not pay for work to the extent that it is not supported by executive documentation
- Demand damages from the contractor due to the fact that he independently completed the missing documentation
- Reduce the contract price by the cost of document production by a third party
Example: the customer refused to pay for part of the work due to its poor quality, then the contractor went to court to collect the debt. The defendant filed a counterclaim to reduce the contract price to the difference between the cost of the actual scope of work performed and the cost of work to eliminate the defects on its own. The court upheld the counterclaim because the contractor did not submit part of the work according to the act, did not hand over the as-built documentation, and did not eliminate the identified deficiencies.
In one case, the parties entered into a contract for the construction of a facility. According to the acts and schedules for eliminating defects, the contractor undertook to provide the customer with as-built documentation, but never handed it over in full.
Because of this, the client was unable to submit documents for verification to Rostechnadzor and filed a claim against the contractor for the obligation to transfer the as-built technical documentation. The court partially satisfied the claims: it did not collect a legal penalty.
Example: the customer filed a lawsuit against the contractor with a demand to terminate the contract, but the defendant filed a counterclaim with a request to collect the debt and penalty. The court granted the main claim and rejected the counterclaim.
The cassation explained to the plaintiff that he could file an independent claim and present evidence that he had incurred expenses for obtaining the missing as-built documentation, and demand reimbursement of these expenses from the contractor.
The contractor collected the debt from the customer for the work performed. The court found that the plaintiff did not transfer to the defendant the documents that were necessary to obtain a technical acceptance certificate for the networks, and also did not transfer the executive documentation on the intra-block storm sewer system. The cost of obtaining such papers, according to the examination, is 7 million rubles.
The appeal and cassation partially satisfied the claim minus this amount, which the customer would spend on the production of documents by a third party.
If the client himself drew up the documents, but cannot calculate the costs of their production, while the construction site is functioning and needs to be paid, then it is recommended to prove the costs using a forensic examination.
As a rule, there are two types of sanctions under construction contracts. These are penalties for late payments and fines for failure to fulfill obligations under the contract, which do not include penalties already accrued for violation of deadlines for completing work.
Late fees
Late fees imply the right of the customer to collect a certain percentage of the cost of work (most often uncompleted) for each day of delay by the contractor.
The amount of this percentage for each day of delay allowed by the contractor varies from tiny amounts, for example, one three hundredth of the refinancing rate, to very significant amounts - one or even five percent. The interest rate is fixed in the contract.
It is important to understand that the customer has the right to collect a penalty only from the amount of work that was overdue, and not from the entire price of the construction contract.
It is also necessary to have an idea of the dates that are recorded as the actual completion of work. Often, these dates are taken as the dates of signing the work acceptance certificates, which are not always congruent with the dates of the actual completion of the work package. The work could have been completed a long time ago, but was accepted (for reasons that were not dependent on the contractor) for a very long time.
In any case, collecting late fees is a very common practice. In relation to contractors, many court decisions are taken “in the negative”, penalties are collected, since it is not possible to prove that the contractor is not at fault for the delay.
In this case, if there is no evidence that the contractor is not at fault for the delay (that is, it really is), it is recommended to use the procedure for reducing penalties based on the provisions of Article 333 of the Civil Code of the Russian Federation. The point is that the accrued penalties and their amounts are clearly disproportionate to the adverse consequences that the customer suffered as a result of the delay. As a rule, the customer does not bear any losses incurred as a result of delay; this is the basis for petitioning the court to reduce late fees, applying the provisions of Article 333 of the Civil Code of the Russian Federation.
Fines for improper execution of contract provisions
A very vague concept. The contract, as a rule, contains a list of provisions, failure to comply with which entails the accrual of such fines. However, it is almost never stated in the contract what exactly such “non-fulfillment” will consist of.
In essence, the contractor’s responsibilities are to complete a set of works in a timely manner, to carry out work in accordance with the technical specifications and estimates, and to comply with the rules for the execution and acceptance of work.
We can use this situation as an example. The construction contract contains a provision on the right of the customer to collect a fine from the contractor for improper fulfillment of the provisions of the contract. The contractor performed the work with a significant deviation from the technical specifications, this is the reason for the accrual of fines for improper execution of the provisions of the construction contract.
The size of such fines can vary from five to ten percent of the contract price. It is important to understand that a delay is also “improper fulfillment of the provisions of the contract”; in this case, a fine for “non-fulfillment” is added to the late fees.
Reducing fines is also possible; it is based on the principles of applying the provisions of Article 333 of the Civil Code of the Russian Federation, the main thing in this case is providing evidence that the customer did not suffer losses, there were no adverse consequences, and the accrued penalties and fines are clearly disproportionate to the possible or actual consequences of violations permitted by the contractor.
Unilateral withholding of penalties accrued by the customer
Very often, a construction contract stipulates the right of the customer to withhold accrued penalties and fines from the amounts payable for work performed, unilaterally.
This means that the customer, having accrued a penalty, simply withholds it from the amounts payable for the work performed by the contractor, thereby reducing the amounts that the contractor expects to receive after completing all the work.
The use of such leverage (unilateral withholding of penalties) is more than controversial. First of all, the contractor does not have the opportunity to prove that he is not at fault for the violations (due to which penalties are accrued and withheld). Moreover, this creates a “vacuum” in the contractor’s reporting documents, because according to the certificates of work performed, one amount is recorded, and for payment another, less. How, in this case, should we correlate the difference in these amounts? For example, it is incorrect to record this difference as accounts receivable. It is possible to “return back” the amount unilaterally withheld by the customer only through the court, that is, in addition to additional costs, this leads to significant delays in receiving the full amount due to the contractor as part of his receipt of payment under the construction contract.
To prevent this situation even at the stage before signing the contract, it is necessary to take measures to eliminate provisions that give the customer the right to withhold penalties unilaterally. If it is not possible to exclude such provisions, it is necessary to take measures during the course of work to prevent violations, for which penalties and fines may be assessed and unilaterally withheld.
In order to reduce or “zero out” the contractor’s penalties, it is necessary, within the framework of arbitration proceedings, to provide and substantiate evidence that the contractor is not at fault for violations and/or such violations did not cause adverse consequences in relation to the customer (disproportionality of the penalty).
To prevent the accrual of penalties, especially to prevent the customer from unilaterally withholding penalties, it is necessary to take measures both before signing the contract (adjust provisions) and during the work (observing document flow discipline, recording the dates of actual completion of work, agreeing on changes in the technical specifications), then there is the adoption of measures that exclude even the very possibility of classifying the contractor’s actions or inactions as a violation of the provisions of the construction contract.
Author: Vera Nikulina, lawyer, Perm
When the customer has the right not to pay if he has not received the documents
Often, construction contracts provide for a condition under which, upon acceptance and transfer of work, the contractor must provide the customer with as-built documentation.
The parties agree: the client will pay when the supplier prepares and submits the necessary papers. Some courts support this approach when a company does not want to pay because it has not received documents regarding the property.
Example: the appellate courts indicated that the execution and transfer of as-built documentation is an essential condition of the contract, on the execution of which payment for work depends.
The courts considered the refusal to transfer documents as a unilateral refusal to fulfill an obligation, which, by virtue of Article 310 of the Civil Code, is unacceptable. The appeal indicated that without documents, the result of the work is not considered transferred, and the final payment deadline will come when the contractor provides the entire package of papers.
What to include in a contract to avoid disputes
Fix in the contract the conditions that upon acceptance of the final results for each of the stages, including intermediate ones, the contractor transfers to the client’s representatives documents that confirm the scope and quality of the work.
The customer, within a reasonable time after receipt, is obliged to study the as-built documentation and send the contractor comments on the design or instructions that the documents do not correspond to the volume of work actually performed.
Example wording
“Within five working days after completion of work for each stage (intermediate stages) of work, the Contractor is obliged to send to the Customer certificates of acceptance of work performed in form KS-2 and a certificate of the cost of work in form KS-3 in two or three copies, as well as a package of as-built documentation confirming the actual performance of work and the Contractor’s costs, in three copies on paper and one copy on electronic media.
After actual receipt of the specified documents, the Customer checks them for the accuracy and completeness of the information reflected in them and, within 20 working days after receipt, signs the acceptance certificates for completed work KS-2 and a certificate of the cost of work KS-3, after which he sends it to the Contractor copies of these documents.
If there are any comments to the submitted documents, the Customer, within 20 working days, is obliged to send the Contractor a reasoned refusal to sign the KS-2 acts and a certificate of the cost of the KS-3 works, indicating the reasons for the refusal. These comments must be eliminated by the Contractor within ten working days from the date of receipt of the Customer’s reasoned refusal.”
Article 708. “Civil Code of the Russian Federation (Part Two)” dated January 26, 1996 N 14-FZ (as amended on March 9, 2021)
1. Since the moment of conclusion and the moment of execution of a work contract never coincide, the deadline for completing the work is an essential condition of the contract. As a result, the commented article obliges the parties to indicate in the contract the initial and final deadlines for the completion of the work. In addition, it is possible to specify intermediate deadlines.
Moreover, if the parties, when signing a work contract, agreed on the terms for completing the work, and subsequently, by an additional agreement, canceled the agreement on the period for completing the work and did not set a new deadline, then the contract itself is recognized as not concluded. The opposite is also true: if the parties did not agree on the deadlines for completing the work when signing the contract, but subsequently established them in an additional agreement, the contract is concluded.
The meaning of indicating the initial, intermediate and final deadlines for the production of work is that the contractor is responsible for their violation, unless otherwise established by legal acts or agreement of the parties. Since the norm is formulated dispositively, the contractor may be released from this responsibility (for example, if his violation of the initial deadline does not affect compliance with the completion date).
In judicial practice, a position has emerged according to which, if the terms of the work are not agreed upon in the contract, such terms should be determined according to the rules of Art. 314 of the Civil Code of the Russian Federation about a reasonable period is impossible.
2. Violation by the contractor of the deadlines for completing the work provided for in the contract means a delay and may have various consequences. If the initial deadline is violated, the customer has the right to refuse to fulfill the contract and demand compensation for losses from him (clause 2 of Article 715 of the Civil Code of the Russian Federation); if any deadline is violated, the customer has the right to refuse to accept the performance and demand compensation for damages if such performance has lost interest for him (clause 3 of the commented article).
The established initial, final, and, in appropriate cases, intermediate deadlines can be changed in cases and in the manner provided for in the contract. The absence of this condition does not affect the validity of the work contract, however, in this case, the deadlines for completing the work can only be changed in accordance with the rules of Chapter. 29 Civil Code of the Russian Federation.
If the contractor violates any deadline, the customer may not remain interested in the work. If, due to a delay made by the contractor at any stage of the work (at the beginning or at its completion, including at the completion of its individual stages), the work has not yet been completed, but the customer has lost interest in its further implementation, the customer may refuse to accept the performance and demand compensation losses (clause 3 of the commented article in connection with clause 2 of Article 405 of the Civil Code of the Russian Federation), in this case the contractor is released from fulfilling the obligation in kind (clause 3 of Article 396 of the Civil Code of the Russian Federation).
3. Judicial practice:
— information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated November 25, 2008 N 127;
— Determination of the Supreme Arbitration Court of the Russian Federation dated May 30, 2012 No. VAS-6830/12 in case No. A04-1367/2011;
— Determination of the Supreme Arbitration Court of the Russian Federation dated March 19, 2012 No. VAS-2399/12 in case No. A46-3334/2011;
— Determination of the Supreme Arbitration Court of the Russian Federation dated November 3, 2011 No. VAS-14427/11 in case No. A43-26318/2010-11-797;
— Determination of the Supreme Arbitration Court of the Russian Federation dated October 25, 2011 No. VAS-13729/11 in case No. A60-37320/2010-C4;
— Determination of the Supreme Arbitration Court of the Russian Federation dated November 15, 2010 No. VAS-14659/10 in case No. A40-74163/09-136-554;
— Resolution of the Federal Antimonopoly Service of the Volga-Vyatka District dated November 25, 2013 in case No. A28-1030/2013;
— Resolution of the Federal Antimonopoly Service of the North-Western District dated August 24, 2009 in case No. A56-22595/2008;
— Resolution of the Federal Antimonopoly Service of the Moscow District dated 03.03.2010 N KG-A40/831-10 in case No. A40-58660/09-63-427;
— Resolution of the Federal Antimonopoly Service of the Moscow District dated December 27, 2006, January 10, 2007 N KG-A41/12819-06 in case No. A41-K1-10992/06.
ON THE. Barinov, S.A. Baryshev, E.A. Bevzyuk, M.A. Belyaev, T.A. Biryukova, Yu.N. Vakhrusheva, R.R. Dolotina, N.V. Elizarova, R.Yu. Zakirov, N.A. Zakharova, P.Z. Ivanishin, S.Yu. Morozov, T.N. Mikhaleva
“COMMENTARY ON THE CIVIL CODE OF THE RUSSIAN FEDERATION. PART TWO OF JANUARY 26, 1996 No. 14-FZ"
year 2014
