Turkish Law Blog

A Review of Article 649 of Polish Civil Code: Guideline for Construction Companies Planning to Enter to Polish Construction Market

Ulaş Devrim Ünal Ulaş Devrim Ünal/ Tecnicas Reunidas
31 January, 2019
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Following the first article of the author regarding Article 647 of Polish Civil Code, this article provides an overview on Article 649 of Polish Civil Code with the same aim of providing some guidelines to the foreign construction companies that plan to enter into Polish construction market.  

The last version of Article 649(1) in force and its free translation in English are given below.

Art. 649 (1)

1. Gwarancji zapłaty za roboty budowlane, zwanej dalej „gwarancją zapłaty”, inwestor udziela wykonawcy (generalnemu wykonawcy) w celu zabezpieczenia terminowej zapłaty umówionego wynagrodzenia za wykonanie robót budowlanych.

2. Gwarancją zapłaty jest gwarancja bankowa lub ubezpieczeniowa, a także akredytywa bankowa lub poręczenie banku udzielone na zlecenie inwestora.

3. Strony ponoszą w równych częściach udokumentowane koszty zabezpieczenia wierzytelności.

Art. 649 (2)

1. Nie można przez czynność prawną wyłączyć ani ograniczyć prawa wykonawcy (generalnego wykonawcy) do żądania od inwestora gwarancji zapłaty.

2. Odstąpienie inwestora od umowy spowodowane żądaniem wykonawcy (generalnego wykonawcy) przedstawienia gwarancji zapłaty jest bezskuteczne.

Art. 649 (3)

1. Wykonawca (generalny wykonawca) robót budowlanych może w każdym czasie żądać od inwestora gwarancji zapłaty do wysokości ewentualnego roszczenia z tytułu wynagrodzenia wynikającego z umowy oraz robót dodatkowych lub koniecznych do wykonania umowy, zaakceptowanych na piśmie przez inwestora.

2. Udzielenie gwarancji zapłaty nie stoi na przeszkodzie żądaniu gwarancji zapłaty do łącznej wysokości określonej w §1.

Art. 649 (4)

1. Jeżeli wykonawca (generalny wykonawca) nie uzyska żądanej gwarancji zapłaty w wyznaczonym przez siebie terminie, nie krótszym niż 45 dni, uprawniony jest do odstąpienia od umowy z winy inwestora ze skutkiem na dzień odstąpienia.

2. Brak żądanej gwarancji zapłaty stanowi przeszkodę w wykonaniu robót budowlanych z przyczyn dotyczących inwestora.

3. Inwestor nie może odmówić zapłaty wynagrodzenia mimo niewykonania robót budowlanych, jeżeli wykonawca (generalny wykonawca) był gotów je wykonać, lecz doznał przeszkody z przyczyn dotyczących inwestora. Jednakże w wypadku takim inwestor może odliczyć to, co wykonawca (generalny wykonawca) oszczędził z powodu niewykonania robót budowlanych.

Art. 649 (5)

Przepisy art. 649 (1) –649 (4) stosuje się do umów zawartych między wykonawcą (generalnym wykonawcą) a dalszymi wykonawcami (podwykonawcami).

Art. 649 (1)

1. A guarantee of payment for construction works, hereinafter referred to as the „payment guarantee”, is given by the investor to the contractor (general contractor) to secure timely payment of the agreed remuneration for performing the construction works.

2. The payment guarantee is a bank or insurance guarantee or a bank letter of credit or bank surety ship given on the investor's instructions.

3. The parties bear in equal parts documented costs of securing receivables

Art. 649 (2)

1. The contractor's (general contractor's) right to demand a payment guarantee from the investor cannot, through a legal act, be exclude or limited.

2. The investor's rescission of a contract due to the contractor's (general contractor's) demand to provide a payment guarantee is invalid.

Art. 649 (3)

1. A construction works contractor (general contractor) may at any time demand a payment guarantee from the investor up to the value of a potential claim for the remuneration arising from the contract and from additional works or works required to perform the contract, approved by the investor in writing.

2. A payment guarantee given does not constitute an obstacle to a demand for a payment guarantee up to the total amount set out in §1.

Art. 649 (4)

1. If a contractor (general contractor) does not receive the payment guarantee demanded in the period specified by the contractor (general contractor), not shorter than 45 days, he is entitled to rescind the contract due to a fault on the investor's part, effective as of the rescission date.

2. Absence of the payment guarantee demanded constitutes an obstacle to performance of the construction works for reasons attributable to the investor.

3. An investor cannot refuse to pay remuneration despite non-performance of the construction works if the contractor (general contractor) was ready to perform the works but encountered an obstacle due to reasons attributable to the investor. However, in such a case, the investor may deduct what the contractor (general contractor) saved by not performing the construction works.

Art. 649 (5)

The provisions of Articles 649 (1)-649 (4) apply to contracts executed between a contractor (general contractor) and further contractors (subcontractors).

Usually, the payment guarantee referred in the Article can take the forms of the forms of: i) bank guarantee, ii) insurance guarantee, iii) bank letter of credit and iv) bank surety ship granted upon the investor’s request.

Despite being very clear in some points such as General Contractor’s or further contractors’ right to demand a payment guarantee and its nature as an “implicit term” of contracts for the performance of construction works, distribution of its cost, consequences of not issuing the guarantee,  etc., there are certain vague points of Article 649 as well.

In section (1), the main purpose of the Article is stated as a security for timely payment of agreed remuneration for performance of construction works, while in sub-item (3), it is stated that the value of the payment guarantee can be up to value of a potential claim for the remuneration arising from the contract and from additional works or works required to perform the contract, approved by the investor in writing. Thus, it is not clear up to which amount the General Contractor or further contractors can demand payment guarantee; the pending remuneration of the contract, i.e., the delta between contract total remuneration and paid amount or any other amount that General Contractor or further contractors claim due to performance of additional works approved. One may consider the contract remuneration together with the extra works approved value as a limit, however there is no such clear provision.

Very possible conclusion of this vagueness is that General Contractor or further contractors, as already witnessed by author of this article, demand payment guarantee for their claims which is replied as considerable by the other party, but with no final agreement on the value yet. In such a situation, the reaction of the demanded party would be to issue the Payment Guarantee to avoid further disputes and claims that may arise from possible contract termination by the other party or notice of hindrance due to lack of payment guarantee under section-2 of the Article. In this sense, the Article seems to go beyond the purpose of providing General Contractor or further contractors a payment guarantee for the agreed remuneration of the contract concluded.

Interestingly, the Article reminds the famous clause 2.4 of FIDIC’s Conditions of Contract for Construction, 1999 (the “New Red Book”) requesting the Employer to provide reasonable evidence that financial arrangement have been made to pay the Contractor. Similarly, lack of response from the Employer within 28 days entitles the Contractor to suspend (clause 16.1) and later even to terminate the contract due to lack of response within 42 days (clause 16.2).

Considering that the right of demanding the payment guarantee under Article 649 cannot be excluded, this clause of FIDIC New Red Book partially overlaps with Article 649.

Another vagueness could be related to the wording of payment guarantee. Usually, guarantees to be issued by banks and insurance companies are subject to further negotiations for wording of the guarantee for the following concepts:

  • Payment formalities: communication ways such as written, by e-mail, by official demand sent by post etc.
  • Assignability of the guarantee: whether the payment guarantee can be assigned to third party, to the client etc.
  • Governing law of the guarantee, etc.

Additional to the above concepts, as discussed in the previous article of the author, many contractors include specific clauses into their subcontract drafts obliging the subcontractors to present the statement from their sub-subcontractors of being dully paid with the aim of reducing the risk of payment being blocked by investor due to direct claim from any level-subcontractor issued to investor[1]. Investors / General Contractors would need to include such a requirement into the wording of Payment Guarantee in order to avoid that the demanding party executes the Payment Guarantee for any overdue invoice blocked by Investors / General Contractors due to lack of payment to its further contractors.

Article 649 refers to all the contracts the subject matter of which is performance of construction works. The question arises which works shall be classified as construction work. There is no clear definition. Article 1 of Polish Building Law says about a “building object”. The definition of a “building object” is in Article 3(1) of Building Law:

Building object shall mean;

a. A building together with technical installation and facilities

b. A structure being a technical and usable object together with installations and facilities

c. A small architectural object

However, definition of a “building object” in Civil Code is generally considered more different than the one in Article 3(1) of Building Law. The definition of Civil Code is broader. It means that construction works contract under Civil Code is a contract to construct a “building object” as defined in Article 3(1) of Building Law, but also a part of such a “building object” or any other object that can be defined as: “[…] an object understood as materialized result of construction works, constituting a self-contained entity that can be distinguished at least in technical or technological terms.[2]

For the sake of understanding, Article 649 does not apply to supply, delivery and services contracts.

As a guideline, contracts concerning fully or partially the construction of following items shall be considered as subject to Article 649; all civil and architectural works, structural steel works, internal technological installations (heating, ventilation, air conditioning, utilities piping, etc.), electrical installations, technological tanks, etc.

 

[1] Unal, Ulas Devrim, “Implications of Article 647(1) of Polish Civil Code: Guideline for Construction Companies Planning to Enter to Polish Construction Market (2018), https://turkishlawblog.com/read/article/47/implications-of-article-647-1-of-polish-civil-code-guideline-for-construction-companies-planning-to-enter-to-polish-construction-market

[2] P. Drapała, commentary to Art. 647 of Civil Code, LEX, Wolters Kluwer

 

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