LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard, Benjamin Marthoz and Tom Storck, Stibbe
7.4 Management of Schedule-Related Risk All possibilities offered by the Civil Code can operate. In particular, forfeiture clauses allow monetary compensation at key stages of the construction. Parties usually use such indemni - fication clauses. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance The main securities under a construction con - tract consist of the following: • cash retention, which involves withholding a small amount from the contractor’s claim (typically 10% of the claim) until a certain value of security has accumulated (typically 5% of the contract sum); • using a separate bank account to give the contractor greater reassurance that it will eventually receive the security amount once its obligations have been discharged; • a guarantee given by a bank to pay an amount on demand to the named beneficiary; • insurance bonds that are similar to bank guarantees, in that they are issued by a third- party financial institution (usually an insurance company) and are payable on demand to the named beneficiary; and • a letter of comfort, which consists of an assurance given by a third party, such as a bank, accountant or related body corporate, about the financial standing of a particular entity. 7.6 Liens or Encumbrances in the Event of Non-payment Mortgages are often used in construction (see 2.3 Effecting Lawful and Proper Transfer of Title ).
• the fixed price contract is most appropriate where simplicity of management is a consid - eration due to the size of the project or the management team; • the cost-plus contract allows the contractor to be paid the full price for all agreed-upon construction-related costs and overheads, and a fee representing the contractor’s profit; and • the unit price contract is often used for repeti - tive projects as it sets a price for each unit of work or task to be completed. 7.2 Assigning Responsibility for the Design and Construction of a Project The architect is liable for the design in the event of a plan defect, if the plans have been rigorously followed by the constructor (contractor) and the owner (client). The architect is bound by an obli - gation of result. The constructor/contractor can be held jointly and severally liable with that of the architect if a defect arises during the works. Finally, the consulting engineer may also be held jointly and severally liable with the archi - tect because their interventions are intermingled. All participants can be held liable for a breach of the client’s advice and due diligence. 7.3 Management of Construction Risk Risk factors can be split into two groups: • internal risks, which fall within the control of clients, consultants and contractors; and • external risks, which include risk elements that are not in the control of key stakeholders. Constructions are regulated by Luxembourg common law provided by the Civil Code.
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