The construction sector plays a significant role in the national economy of Latvia. This is the seventh largest sector of the national economy of Latvia employing tens of thousands of people and implementing extensive residential, commercial and public infrastructure projects.
Just as in any other sector, the construction sector is also governed by regulatory enactments, which are significant and binding to every participant of the sector. It is important to know one’s rights in every process of construction to avoid risks of legal nature or find a justified resolution in the case of disagreements.
Regulatory enactments worth knowing:
- Civil Law
- Construction Law
- General Construction Regulations
- Regulations Regarding the Registration of Construction Merchants
- Procedures for Ensuring Record-keeping of Construction Waste Produced and Transportation Thereof
- Labour Protection Requirements During Construction Works
- Commercial Law
- Public Procurement Law
- Labour Protection Law
- Electronic Documents Law
- Law on the Legal Force of Documents
- Procedures for the Surveillance of Market of Construction Products
Both during the construction projects and guarantee period of construction works, disputes may arise between the parties, on the basis of which one of the parties may exercise its rights, for example, to suspend the works, withhold payments, calculate contractual penalties or terminate the contract. Such cases are not rare in our practice, therefore it is very important to find an operative and legally correct solution. Timely solution of the problem situation may significantly reduce or fully exclude any risks of facing the chain of problems, which may significantly affect the company’s reputation and financial situation.
Most frequently detected mistakes of customers (subcontractors) in practice:
- Contract is not carefully assessed before signing.
- Provisions of the contract providing for the contractual amount as final and including any growth of construction costs, reserve of any unforeseen works, only providing for the payment of performance after the general contractor has received money from the client etc. are accepted.
- Contract does not provide for the subcontractor’s right to suspend the works in the case of the failure to make payment.
- Provisions of the contract providing for all the amendments and supplements to be drawn up in writing are not complied with. Additional works are performed without a written agreement, thus providing grounds for disputes concerning the fulfilment of the contract.
- Claims and objections are not expressed in writing.
- Problems are not fixed in acts, which should be signed by both parties.
- Subcontractor considers that the preparation of written acts, claims, warnings and agreements takes too much time, therefore these actions are skipped.
- According to the contract, the general contractor only makes payments to the subcontractor after the receipt of payment from the client.
- Contract provides for that general contractor is entitled to unilaterally terminate the contract with the subcontractor, if the client terminates the contract with the general contractor.
Larger or smaller unforeseen construction works occur at any object – whether it is a castle, private house, public building or educational institution. Designer or builder is not able to foresee everything during the designing process or prior to commencement of the works. Then, a situation arises where, as soon as some unforeseen works occur, the general contractor and the client refers to the contract, which specifies that a particular object must be built for a particular amount of money, and, if any unforeseen works and expenses not included in the contract occur, subcontractors are actually forced to perform these works at their own expense.
Recommendations to reduce the problems
- Contract is entered into by two parties instead of one. During the course of execution of the contract, disputes may arise, therefore one should not save time at the expense of drawing up and signing these documents. These documents may become very significant evidence for the protection of interests in the future.
- If the client delays payment for a period exceeding X days or if the amount of debt exceeds X, the builder is entitled to suspend the works. This prevents increase of the debt. Such rights must be included in the contract, otherwise, according to the Law, the builder is obliged to compensate the losses and pay a contractual penalty, since the Civil Law does not provide for the suspension of works, but just the opposite instead.
- Transfer-acceptance reports must be submitted to the client in return for a signature confirming the receipt of such reports.
- By one’s own effort or involving a specialist, equal provisions must be reached, for example, if a subcontractor is obliged to pay certain late payment interest, e.g., 0.5% for each day of delay, the main general contractor is obliged to pay interest for overdue payment to the subcontractor at the same rate.
In 90% per cent of the cases, contractors with their signed contracts, provide grounds for the problems, which result in financial losses.
We have successful experience in the resolution of disputes with the largest construction companies of Latvia. We help our clients and partners on matters of debt recovery and take care of their interests, defend them in disputes concerning the performance of works providing the efficient and professional legal resolution of the case. Our experience in the construction sector makes us valuable cooperation partners for any construction company in Latvia. We can help you in all the legal processes, from conducting negotiation with the debtor to the recovery of debt!
How can we help?
- To fix and introduce procedures, which would prevent a delay of payments for a period exceeding 60 days after the date of the invoice.
- To take over full communication with the debtor – to remind you of outstanding liabilities, at the same time warning of further consequences in the case in question. During our dialogue with the debtor, we always try to reach the point that the debtor enters into such an agreement, which prevents its business from interruption, in parallel ensuring the shortest possible term for the full settlement of liabilities.
- To resolve disputes and look for compromises, which would be equally binding to both parties and include strictly developed provisions and criteria for the repayment of debt liabilities.