LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard and Benjamin Marthoz, Stibbe
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, which 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 ). 7.7 Requirements Before Use or Inhabitation Ownership rights relating to real property are entered into the Administration Registry and the Mortgage Registry, which prevents a third party from purchasing the same piece of property in good faith.
• 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 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. 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.
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