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Construction Contracts

What is a Lump Sum contract?

It is a fixed-price contract where the contractor agrees to complete the project for a set amount, regardless of actual costs. The contractor bears the risk of cost overruns.

Are FIDIC contracts mandatory in Georgia?

No, they are not mandatory by law for private projects, but they are standard for large infrastructure projects funded by international donors.

Can I withhold payment for defects?

Yes, usually contracts allow retention of a certain percentage (e.g., 5-10%) or withholding payment until defects are rectified ("Snagging List").

What is a Performance Bond?

It is a bank guarantee that ensures the contractor will complete the project according to the contract. If they fail, the bank pays the client a specified amount.

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Construction Contracts: Risk Management and Successful Partnership

The success of a construction project largely depends on the quality of the agreement signed between the parties. A construction contract is not a mere formality; it is a complex legal instrument that allocates risks, defines responsibilities, and sets performance standards between the client and the contractor. In Georgia, where construction rates are high, disputes over missed deadlines, budget overruns, or poor-quality work are common. Most of these problems stem from vague or incomplete contracts.

A properly drafted construction contract must consider the specifics of the project, whether it is a Lump Sum, Unit Price, or Cost Plus model. In addition to local standards, FIDIC (International Federation of Consulting Engineers) standard forms are increasingly used for large projects in Georgia. Legal.ge offers access to lawyers with experience in drafting and auditing both local and international standard (FIDIC) contracts, ensuring maximum protection of your interests.

What Does Construction Contracts Service Cover?

Specialists on Legal.ge offer comprehensive services:

  • Selecting Contract Type: Determining the optimal model (e.g., Design-Build vs. Construction only) based on the project nature.
  • FIDIC Contract Adaptation: Tailoring terms of the Red, Yellow, or Silver Books to Georgian legislation (Civil Code) and project reality.
  • Defining Scope of Work: Legally integrating technical specifications into the contract to rule out misunderstandings regarding the work to be performed.
  • Payment Terms and Guarantees: Developing mechanisms for advance payments, milestone payments, and bank guarantees (performance bond, advance payment bond).
  • Risk Allocation: Fair distribution of risks related to force majeure, material price increases, and unforeseen geological conditions.
  • Dispute Resolution Mechanisms: Including clauses for arbitration, court litigation, or Dispute Adjudication Boards (DAB).

Common Scenarios and Real-World Examples

Professional contract management is needed in the following situations:

  • Public Tenders: Participating in state procurement often involves strict contractual terms. A contractor needs risk assessment before signing.
  • Inflation and Price Escalation: Material costs rise during construction. If the contract does not include a price adjustment mechanism, the contractor will suffer losses. A lawyer helps include an indexation clause.
  • Subcontracting: A general contractor hires specialized companies (e.g., for electrical work). Back-to-Back contracts are needed to correctly distribute liability.

Georgian Legal Framework

Construction contracts are regulated by:

The Civil Code of Georgia regulates the Works Contract ("Nardoba," Articles 629-656). The law establishes that the contractor is obliged to perform the work, and the client is obliged to pay the remuneration. The Code defines liability periods for defects and the moment of risk transfer.

Public Law Norms: The Construction Code sets imperative requirements for safety and quality, which cannot be altered by contract.

International Practice: In projects funded by donor organizations (World Bank, EBRD), FIDIC standards often prevail, although they must not contradict Georgia's mandatory legislation.

Step-by-Step Service Process

Working with Legal.ge experts involves:

  1. Requirement Analysis: Clarifying project scale, budget, and timelines.
  2. Drafting: Creating an individual contract or adapting a standard form.
  3. Negotiations: Agreeing on terms with the other party (price, deadlines, penalties).
  4. Signing and Execution: Finalizing the contract and managing it during construction (Variations).

Why Choose Legal.ge?

A bad contract is a mine that will explode sooner or later. Legal.ge gives you access to lawyers who understand not only the law but also the language of the construction business. We will help you create a contractual foundation that minimizes uncertainty and ensures the successful completion of the project. Sign a reliable contract today.

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