What standard contract forms, if any, are used for construction and design? Must the language of the contract be the local language? Are there restrictions on choice of law and the venue for dispute resolution?

In Ukraine, there is no standard mandatory form of a construction contract. “The General Conditions for Conclusion and Performance of Capital Construction Contacts” approved by the Resolution of the Cabinet of Ministers of Ukraine No. 668, dated 1 August 2005 (Regulation No. 668), provides recommended terms and conditions of construction contracts in capital construction, which the parties may deviate from provided the provisions of the contract do not contradict imperative (mandatory) provisions of Ukrainian law. Regulation No. 668 provides that the general conditions should be “mandatorily taken into consideration” irrespective of the sources of construction funding or the form of ownership of an employer or a contractor.

Regulation No. 668 does not provide for a binary structure of a construction contract – there are no references to particular conditions such as in International Federation of Consulting Engineers (FIDIC) contracts. It is more common in Ukraine to have a construction contract drafted as a single document, without splitting it into General Conditions and Particular Conditions as in the case with FIDIC.

According to Regulation No. 668, the construction contract should contain the following material terms to be valid:

  • name and details of the parties;
  • date and place of execution of the contract;
  • subject matter of the contract;
  • contract price;
  • terms for commencement and completion of work;
  • rights and obligations of the parties;
  • instruments to secure the fulfilment of obligations under the contract;
  • terms and conditions of insurance covering the risk of accidental destruction or damage to a construction object;
  • order of procurement of design documentation, resources and services required for the performance of works;
  • order of engagement of subcontractors;
  • requirements for the arrangement of works;
  • order of employer’s supervision over the quality of resources;
  • terms for conduction of author’s and technical supervision with respect to construction works;
  • sources and order of financing of construction works;
  • payment procedure;
  • procedure of handover of completed construction works/construction object;
  • guarantee terms regarding the works and object, remedy of defects;
  • parties’ liability for the violation of the contract;
  • disputes resolution procedure; and
  • grounds and procedure for amendment of the contract and its termination.

Template forms of contracts such as FIDIC may be used subject to their alignment with Ukrainian imperative law provisions.

The language of business documentation, social and economic relations as well as agreements shall be the official state language (ie, Ukrainian). At the same time, the current legislation does not prohibit concluding bilingual contracts, which are widely used in international contracts (contracts with a foreign element).

Provided that the construction contract contains a foreign element (either party is a foreign entity), the contract may be governed by a foreign law and the parties may apply for disputes resolution either to Ukrainian courts or international arbitration institutions, subject to the agreement of the parties. As a matter of practice, construction contracts concluded as a result of public procurements are usually governed by Ukrainian law at the request of the customer.Payment methods

How are contractors, subcontractors, vendors and workers typically paid and is there a standard frequency for payments?

Payments under construction, supply and services contracts are normally made by wire transfer. The National Bank of Ukraine limits the amount of cash settlements per day to 10,000 hryvnias between business entities, 50,000 hryvnias for individuals (including both transactions between individuals and between a business entity and an individual). Non-cash payments shall be made through banks and non-bank payment service providers where the respective accounts are opened. Payment procedures as well as the payment schedule are subject to the agreement of the parties.Contractual matrix of international projects

What is the typical contractual matrix for a major project in your jurisdiction in terms of the contractual relationships among the various construction project participants? For example, do owners contract directly with contractors or do they contract through construction managers to trade contractors? Are any of the relationships legally defined?

As a matter of practice, employers in Ukraine usually conclude contracts for design works and construction works directly with certified designers and licensed contractors. For the small scale projects, employers usually engage a designer and multiple contractors, each responsible for separate work packages. For large-scale projects, employers engage a general contractor, who then hires subcontractors for relevant packages of works and manages construction. The general contractor may be responsible only for construction works based on the design documentation provided by the employer (eg, similar to the FIDIC Red Book contract) or perform both design and construction works (eg, similar to the FIDIC Yellow Book contract).

Engaging an engineer (eg, with the functions as provided, such as in the FIDIC Red, Yellow or Harmonised MDB edition) is not a widespread practice in Ukraine. Nevertheless, an engineer is often engaged in large-scale international contracts or contracts involving financing from international financial institutions.

In Ukraine, certain relationships among construction project participants are legally defined and regulated by Civil Code, construction-related and public procurement laws. These regulations set out the rights, obligations and responsibilities of the various parties involved in a construction project. Below are the main legal aspects defining relationships in construction projects:

  • The relationship between the employer and the contractor is primarily governed by the Civil Code of Ukraine and the Law on Regulation of Town-Building Activities and are typically formalised through a construction agreement, which defines the scope of work, deadlines and payment terms.
  • The relationship between the general contractor and subcontractors is governed by the Civil Code of Ukraine, the Law on Regulation of Town-Building Activities and a subcontract agreement. The subcontract defines the work to be performed by the subcontractor, terms of payment and scope of responsibilities.
  • The relationship between suppliers/vendors and contractors is typically based on supply contracts and governed by the Civil Code of Ukraine and the Law of Ukraine “On Public Procurement” (if applicable). Supply contracts govern the provision of materials, equipment and other resources required for the project.
  • For public construction projects, relationships between the state (public body) and contractors are governed by the Law of Ukraine “On Public Procurement“, which mandates competitive bidding, transparency and fair treatment for all contractors, both local and foreign. The law also defines the framework within which the state contracts for construction services, including the requirements for tendering, contract awards and execution of works.

PPP and PFI

Is there a formal statutory and regulatory framework for PPP and PFI contracts?

Ukraine has a regulatory framework for PPPs and concessions. It was significantly updated in 2018 and is still being improved. The Ukrainian PPP regulatory framework was developed in consideration of best international practices and currently includes over 20 laws and by-laws, including the following key legislation:

Joint ventures

Are all members of consortia jointly liable for the entire project or may they allocate liability and responsibility among them?

Ukrainian law does not provide for the joint and several liability of the consortium members. Unless Ukrainian law directly provides for joint and several liability, the parties of the contract are free to agree on joint and several or joint shared liability of the consortium members.

In large-scale projects, employers prefer having a general contractor that is liable for the management, timely and proper fulfilment of all works.Tort claims and indemnity

Do local laws permit a contracting party to be indemnified against all acts, errors and omissions arising from the work of the other party, even when the first party is negligent?

Under Ukrainian law, the general contractor is liable for the proper performance of construction works under the construction contract, regardless of whether such works were performed by the general contractor or by a subcontractor. A general contractor is liable to the employer for non-fulfilment or improper fulfilment of obligations by its subcontractors, regardless of the subcontractor’s fault.

At the same time, a party that breaches its obligations (eg, subcontractor) shall compensate damages to another party (eg, general contractor), unless it proves that the breach of the obligation occurred through no fault of his or her own. Therefore, the general contractor may file a regress claim to its subcontractor.Liability to third parties

Where a contractor constructs a building that will be sold or leased to a third party, does the contractor bear any potential responsibility to the third party? May the third party pursue a claim against the contractor despite the lack of contractual privity? Can a contractor’s liability to contracting parties and others be limited by contract or law?

The contractor is liable to the employer or developer for the quality of works within the warranty period established by the contract or law and shall remove any defects in the building within the warranty period. A third party who purchased a building from the employer or developer (first purchaser) has the right to file a claim with regard to the defects of such building to the employer/developer, which will then have a right to file a regress claim to the contractor within the statute of limitation. If the first purchaser is to further sell the building to another person, such new purchaser will have no right of claim to the employer or developer.

A contractor’s liability to contracting parties and third parties can be limited by contract, except in cases involving gross negligence or wilful misconduct, harm to life or health, or personal injury. Ukrainian law allows parties to agree on liability caps, limitation periods and exclusions of indirect or consequential damages.Insurance

To what extent do available insurance products afford a contractor coverage for: damage to the property of third parties; injury to workers or third parties; delay damages; and damages due to environmental hazards? Does the local law limit contractors’ liability for damages?

The above risks may be covered by the following insurances available in Ukraine:

  • insurance of construction risks, including insurance against accidental damages to the property of third parties;
  • third-party liability insurance, which covers liability for the damages to the property or health of third parties;
  • professional indemnity insurance, which allows parties to ensure against losses unintentionally caused to third parties in the course of professional activities as a result of unintentional professional error (omission, negligence) or other events stipulated by the insurance contract;
  • environmental liability insurance; and
  • accident insurance, including an industrial injury and occupational illness of employees.

Under Ukrainian law, the damages and losses (direct losses and lost profit) shall be reimbursed in full unless liability is limited by the law or contract. Ukrainian law does not limit the contractor’s liability for damages. At the same time, the law prohibits limiting liability for the intentional breach of obligations.

Source: At a glance: construction contracts and insurance in Ukraine – Lexology

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