The Legal Nature of a Construction Contract
In the Georgian Civil Code, construction contracts are regulated through the model of the contract for work. Under this contract, the contractor undertakes to perform the work provided for by the contract, while the customer is obliged to pay the contractor the agreed remuneration. Article 629 frames this model and supplies the foundation of every construction contract: the parties agree on a specific result, and remuneration is an essential element of that agreement. Where the work involves the manufacture of a product and the contractor produces it from material purchased at its own expense, the contractor transfers to the customer ownership of the finished product, and where a generic thing has been manufactured, the rules on sale apply.
Before concluding the contract, attention should be given to the cost estimate: under Article 629, the preparation of a cost estimate related to the contract for work is not reimbursed unless otherwise agreed. This means that the parties should decide in advance who bears the cost of preparatory work and, where necessary, record that in the contract; otherwise each party carries its own preparatory expenses.
Remuneration: Agreement, Tariffs and the Customary Price
Article 630 lays down the rules on remuneration: remuneration is deemed agreed even implicitly if, in the circumstances, the work is to be expected only for remuneration. Where the amount of the remuneration has not been agreed, the applicable tariff rate is deemed agreed if tariffs exist, and if no tariffs exist, the customary remuneration applies. In a construction contract, this rule preserves the bargain even where the price line has been left incomplete and anchors the price in a level formed on the market rather than letting the contract collapse.
The moment of payment is determined by Article 648: the customer must pay the contractor the remuneration after the completion of the work, unless the contract provides for payment by instalments. In commercial construction the parties often agree on staged payments, which is permissible, but that agreement must be clearly reflected in the contract — otherwise the basic rule of payment after completion applies.
Performance: Personal Work and Materials
Under Article 632, the contractor must perform the work personally only where this follows from the particular circumstances or from the nature of the work. In construction practice this means that an assignment of a genuinely personal character cannot be handed to someone else, while for ordinary construction works the organisation of performance is the contractor's decision — although responsibility for the result remains with the contractor in every case.
The question of materials is regulated by Article 646: if the contractor performs the work using its own material, it is liable for poor-quality material, and it is equally responsible for the improper use of the customer's material. The contractor must submit to the customer an account of the use of the material and return the remaining material. A proper record of consumption is an important instrument of dispute prevention, because it ties the parties' expectations to actual data.
Legal Flawlessness and Acceptance of the Work
The result received under the contract must be flawless not only technically but also legally: under Article 640, a product is legally flawless if third parties cannot exercise any rights against the customer. For a commercial facility this is particularly important, because third-party rights can obstruct the registration of the object, its financing or its subsequent use.
Acceptance of the work is governed by Article 649: where handover is required under the contract or follows from the nature of the completed work, the customer must accept the completed work and pay the remuneration immediately upon acceptance. If the customer does not take over the work within the period set by the contractor, the work is deemed accepted. This norm protects the contractor where the customer, without justification, avoids taking over the result and thereby delays payment.
Frequently Asked Questions
How is the price determined if the amount was not agreed?
If tariffs exist, the applicable tariff rate is deemed agreed; if no tariffs exist, the customary remuneration applies. Remuneration is deemed agreed even implicitly where the work is to be expected only for remuneration.
Must the contractor perform the work with its own hands?
Only where this follows from the particular circumstances or from the nature of the work. Otherwise the organisation of performance is the contractor's matter, while responsibility for quality remains with it.
Who answers for the materials?
The contractor is liable for poor-quality material of its own and for improper use of the customer's material, and it must present an account of material use and return the remainder.
When is work deemed accepted?
Where handover is required, the customer must accept the work and pay immediately upon acceptance; if the customer fails to take it over within the period set by the contractor, the work is deemed accepted.
What is a legally flawless product?
A product in respect of which third parties cannot exercise any rights against the customer — an essential condition for the further use of a commercial facility.
How We Help on Legal.ge
The lawyers of Legal.ge assist clients at every stage of preparing and performing construction contracts. We will review the price and payment schedule of your contract, establish procedures for recording materials and accepting the work, and assess the risks associated with the rules on contracts for work. Contact us on Legal.ge — we will help make your construction contract soundly drafted and keep your position protected if a dispute arises.