1. Introduction

Within Norwegian, land-based contract law, we distinguish between two forms of construction, namely execution contract and turnkey contract.

The fundamental difference between these two options is that the contractor designs in detail in addition to performing when having a turnkey contract. In an execution center, it is the builder who projects while the contractor executes. While the general contractor has the functional risk in a turnkey contract, it lies with the builder in an execution contract.

2. Builder's organization of construction projects

No project is the same and therefore the projects are organized in different ways.

However, there are some types of cases and these are the ones that are described here.

Some have the understanding that “general contractor” is in charge of absolutely all the subjects required to complete a construction project, but that is not correct.

“Total” means only that the contractor both projects and executes.

You can have as many side general contractors as you have trades (construction, plumbing, ventilation, electrical, etc.).

With this said, it must also be clarified that today most often the builder enters into a contract with only one general contractor who is given responsibility for absolutely all subjects. The consequence of this is that the general contractor must engage subcontractors and most often these are total subcontractors with responsibility for their respective subjects.

If the developer has chosen to carry out his project as an execution center, he has traditionally chosen to use several terms depending on how the project has been organized.

First, there are those cases where the builder contracts several contractors where each one is responsible for carrying out what belongs to the individual's profession (construction, plumber, tiler, electrician, bricklayer, painter, plumber, etc.). Then one likes to say that the implementation is organized as builder-led subcontracting. This is the most demanding form for the builder because he has to coordinate and manage all contractors and is therefore at quite high risk if the contractors delay each other's work.

Secondly, there are cases where the builder has engaged a general contractor responsible for all construction trades, and then the builder has signed his own contracts with the technical contractors (plumber, electrical). When this is the case, most often the main contractor is responsible for coordinating and coordinating the technical contractors, but still so that the builder has a risk of progress for the side contractors.

Thirdly, we have the situation where all subjects are entered under only one contractor. What then happens is usually that the person who would otherwise have been the main contractor also gets the responsibility of delivering the technical subjects. Where this is the case, the term general contractor is used.

Regardless of the type of contract (execution or total), it is normally a great advantage for the builder to have only one contract party to deal with.

Then the builder does not have to risk the progress of the various contractors. Instead, leave all risk of coordination and progress to the one contractor with whom the builder has contracted.

As a rule, contractors are better suited to coordinate and coordinate other contractors. Entrepreneurs know better where the “shoe presses” and not least; where to press in order for other contractors to fulfill within the given deadlines.

3. Points that should be considered before choosing a contract reform

If the developer wishes to have the freedom to make decisions about solution choices and qualities as closely as possible against the actual execution, the builder should consider an execution centre. Then the builder is much freer to make such choices than the builder can do in a turnkey contract.

It is a fundamental feature of the turnkey contract reform that the general contractor should have the freedom to determine for himself how he wants to solve functional requirements. The reason for this is, of course, that the developer has not restricted the choice access in the agreement that has been concluded.

The same applies if the developer wants to have the greatest possible room for action during the implementation phase for other reasons.

If turnkey is chosen in a situation where the project is immature so that the developer will have to add new guidelines for solution selection, this speaks for an execution center rather than a turnkey contract.

Another circumstance that can speak for an execution center is where the builder has particularly high requirements for quality and/ or functionality that the builder does not want to give the general contractor any kind of freedom of choice.

One circumstance that can speak for turnkey construction is that it is urgent for the builder to get the project started. He relies on the physical works to be started before the detailed design can be carried out. The functional requirements will then be fixed and sufficient for general contractors to be able to compete for the assignment. After the contract has been awarded, the general contractor will first design in detail what is required to initiate works in the ground if necessary infrastructure measures, and then the rest is designed in detail as needed. The general contractor will also have the dialogue with the building authorities and thus have control over when an application for commissioning permits must be submitted for the individual works. With such a solution, the physical work can be carried out fairly quickly, saving time.

Another consideration that advocates the turnkey contract reform is that the developer entrusts the functional risk to the general contractor.

That said, this could also be a double-edged sword seen from the builder's standpoint.

One of the motivations for a general contractor is precisely the freedom of choice.

A general contractor conducts a commercial business with requirements for earnings and will normally choose the option that is economically most favorable for him. It is not always a given that that option is most beneficial to a builder if one looks at the life cycle costs. An alternative for the builder may then be that one reserves the right to make decisions along the way, that the general contractor must present alternative (but equivalent) solutions from which the builder can choose or that the builder makes detailed requirements in his description.

In any case, these are moments the builder should think about before sending out the offer or competitive basis.

4. Organization of the entrepreneur

As a general rule, we can establish that it is not possible for an individual contractor to organize and carry out a construction project using only its own internal staff. No one has all subjects represented in their own organization and not enough employees to carry out many parallel projects.

Whether you are a general contractor in an execution center or a general contractor with responsibility and risk for all (or most) subjects necessary to carry out a project, one must contract subcontractors, etc.

The challenges that the builder previously had with progress management and coordination of several side contractors have in practice only moved down one level — to the contract link between the general contractor/general contractor and their subcontractors.

Today, the complexity of the projects can also be quite demanding with the corresponding need for different expertise of those contracted.

It is not uncommon to have 20, 30, 40 or even more subcontractors in a single construction project, and consequently there is a great need for good project and construction management. In addition, there is a need for good management of the designers if you are a general contractor.

When a general contractor enters into agreements with his subcontractors, he must decide whether they should be given responsibility and risk for designing their own works, or whether he should retain that responsibility himself. There is nothing in the way of a general contractor with a NS 8407 contract with the builder entering into an ordinary subcontract based on NS 8415 with one or more of his subcontractors. There is no requirement to use total subcontracting based on NS 8417.

Similarly, there is no need to use NS 8416 contracts with its subcontractors even if an execution contractor has a NS 8406 contract with the builder. Often, an execution contractor - at least if he is a general contractor - will be able to have a desire for stricter management of his subcontractors and thus choose NS 8415 contracts.

It is not a given that this or that solution is better or worse than the other.

A number of different factors can come into play, and it falls too far to go into these here. The key point to be made is that there is not necessarily any automatism between the choices a general contractor makes with regard to contract reform down to his subcontractors and what applies between himself and the builder.

For a main or general contractor with an execution contract with the builder, on the other hand, there is no doubt; then there will always be an execution contract down to the subcontractors who are either based on NS 8415 or NS 8416.

5. Standard Contracts

For many decades Norsk Standard has developed standard contracts for use in the construction and construction industry.

These are standard contracts drawn up by specially constituted committees made up of knowledgeable representatives coming from all sides who get involved in construction projects. Accordingly, we like to call the standard contracts “agreed documents” where the result is a careful balancing of the needs of all parties.

In view of this, it is therefore desirable that the parties to the individual construction project using the standard contracts do not (too many) make their own special provisions. The rationale for this is that standard contracts should not interfere with the balancing of risk and liability between the parties. (Nevertheless, special contractual terms are often drawn up in the individual contracts that supplement, modify, and perhaps also remove provisions in the standard contracts).

We can say that we have two levels of standard contracts where the superior is intended to be used in the relationship between the builder and the contractor, and the subordinate is intended to be used by the main or general contractor against his subcontractors.

The parent series consists of three standard contracts with the designations NS 8405, NS 8406 and NS 8407, while the series intended for subcontractors have been given the designations NS 8415, NS 8416 and NS 8417.

The idea is that contractor uses the subcontract that ends with the same digit as the digit of the main contract with the builder. If you have a NS 8405 contract with the builder, it is natural to use NS 8415 against a subcontractor. Nevertheless, it is emphasized that there is no requirement and one has complete freedom of agreement.

It will always be the developer who chooses whether a project will be carried out as an execution center or a turnkey contract. If the developer chooses to organize the project as an execution center, he has the choice between NS 8405 and NS 8406, while only NS 8407 is the option for turnkey contracts.

In NS 8405 and NS 8406, the contractor is referred to as “general contractor” as a common term. It is also the term in NS 8415 and NS 8416. This in contrast to “builder” in NS 8405 and NS 8406, and unlike “subcontractor” in NS 8415 and NS 8416. We therefore use “general contractor” as the term when it comes to execution centres.

Since the subcontracting standards are harmonized with the overall standards, we would recommend that the general contractor/general contractor generally use the relevant subcontracting standard to their subcontractors.

As mentioned earlier, there is nothing in the way of a general contractor retaining all or part of the detailed design himself. In that case, it would be natural to use NS 8415 down against the subcontractors rather than NS 8417. The background for that is that NS 8415 is structured similarly to NS 8417 with respect to exclusionary deadlines, notification regime, strict requirements for writing, etc. Should a general contractor decide that the risk of its own detailed design should be transferred to the individual subcontractor, it is natural to use NS 8417. Naturally, the same also applies when the total subcontractors have to design their own work in detail, as NS 84176 assumes.

Since there are two different standards for execution centres (NS 8405 and NS 8406 and associated subcontracting standards NS 8415 and NS 8416) it is appropriate to say something about the difference.

NS 8506 is a standard intended to be used for the more simple and transparent construction projects where the parties do not want contract administration and execution to be characterized by strict formalism. This does not mean that NS 8406 is excluded from use in large and extensive projects. For example, Statens Vegvesen has used NS 8406 as its standard contract in large road projects.

NS 8405 (and NS 8407), on the other hand, has very formalistic rules with strict requirements for deadlines, for writing and for notification. The legal consequence of failure to comply with these provisions is that the person who does not comply loses his claim (s) or his (e) objection (s) to the claim of the counterparty.

The legal expression is that these standards contain exclusionary time limits and where “exclusive” means that the deficiencies of compliance entail the lapse of rights.

6. Functional requirements — detailed design — planning of own works

When designing, a builder will always start by mapping out their own needs and what it is they want to get listed. You go through different phases, and gradually the builder comes up with a preliminary project where the functional requirements of what is wanted listed are indicated.

When a developer wants the project completed in a turnkey contract, it is normally the preliminary project with functional requirements and associated performance descriptions that form the basis for a tender competition, and subsequent contract conclusion with a general contractor.

The next thing that happens is that functional requirements and performance descriptions are added due to the general contractor in their detailed design.

In most cases, functional requirements can be solved in several different ways, and it follows from NS 8407 that the general contractor has a freedom of choice. With that said, there may be other requirements in the contract that limit the general contractor's freedom of choice, but we'll leave that for now. The bottom line is that the general contractor has the freedom to choose how functional requirements are to be met unless otherwise stated in the parties' contract.

Since the general contractor has assumed responsibility for designing in detail the solutions that will meet the functional requirements of the builder, etc., it is said that the general contractor has assumed the functional risk. If it turns out that the functional requirements are not met, there will be an error (deficiency) in the final product, and it does not help if the detailed design and/or workmanship is otherwise excellent. It is the functional requirements that must be met.

In an execution center, the situation is the opposite. Then the builder shall supervise the detailed design and ensure that it produces a result which means that the functional requirements of the builder are met.

The contractor shall carry out only what the detailed design instructions indicate. Should the final product show that the builder's functional requirements are still not met, but otherwise in accordance with the detailed design, failure to meet the functional requirements will be the builder's risk.

Finally, it is pointed out that regardless of whether the contract is carried out as a fulfilment or turnkey contract, all contractors must plan their works so that the works are carried out in accordance with applicable rules, norms and relevant supervisors. What we are referring to here is such things as spacing between, for example, beams which in turn will depend on the dimension and length of the wood used. It can be the choice of the quality of the insulation material, the use of water-resistant plaster versus ordinary plaster, the correct fall to the drain, the use of the right type of gutters with a drain cuff that is laid correctly in relation to the selected membrane solution in wet zones of bathrooms, etc.

Not everything is designed in detail and the detailed design must therefore be complemented by a variety of sources of knowledge. Technical regulations (today; TEK17) with a supervisor, SINTEF Byggforsk building detail sheets, manuals from SINTEF, suppliers' descriptions of how equipment, materials or other equipment should be used/assembled, etc. must be used as a starting point.

All these are sources of information that the executing contractor must use when planning his own execution. So there will always have to be a line drawn against what is actually and legally detailed engineering where the builder is responsible, but it's hard to draw that line in an article like this.

7. Summary

Today, the developer side often uses turnkey contracts and it is usually NS 8407 that is used.

The builder often draws up special contract terms to tailor the contract to the particular needs of the project in question.

A general contractor will often choose to use NS 8417 as a contract down against his subcontractors if they are to have responsibility and risk for the detailed design required for their works. However, there is nothing that prevents a general contractor from retaining responsibility and risk for the detailed design, and even entering into contracts with its subcontractors based, for example, on NS 8415.

NS 8405 and NS 8407 and associated subcontracting standards (NS 8415 and NS 8417) are intended for use in larger/demand/ complex projects where a high degree of formalism is desirable, and the use of a preclusive notification regime.

NS 8406 is intended to be used in the more transparent projects where there are not as strict formalism requirements, and preferably where there are few contractors with a contract against the builder.

Completely regardless of the form of the contract, the performing contractor has the obligation to plan his work so that this is carried out in accordance with the applicable rules, norms, supplier instructions (artisanal execution).