Construction Law and Projects in Germany

Construction law in Germany in brief

German construction law rests on three pillars. The Civil Code (Bürgerliches Gesetzbuch, BGB) contains the general law of contracts for work (§§ 631 ff. BGB) and, since 2018, specific rules for construction contracts, consumer construction contracts and architects' and engineers' contracts (§§ 650a ff. BGB).

The VOB/B, a set of standard contract terms for construction works developed by a committee of public and private stakeholders, is mandatory for public employers and widely used in private projects. The Fee Structure for Architects and Engineers (HOAI) provides the framework for planning fees. On top of these sit public building law, procurement law for public projects and an extensive body of case law on variations, defects and delay.

For employers, contractors, developers and investors, construction law determines how risk is allocated between the parties: who bears the cost of design changes, ground conditions, price increases and delays, how defects are dealt with, and how disputes are resolved. This page explains the contractual framework, variations, acceptance and defects, delay and disruption, security, architects' and engineers' contracts and dispute resolution. For the wider context, see our overview of real estate and public law.

Contract models and the VOB/B

Projects in Germany are delivered through several contract models. In the traditional model, the employer engages an architect for design and separate contractors for individual trades. A general contractor (Generalunternehmer) executes all construction works, often subcontracting parts. A general contractor with design responsibility (Generalübernehmer or design-and-build contractor) also provides the design.

Partnering models, alliance contracts and construction management are used in larger projects, though they must be adapted to German law. The choice of model determines the interfaces the employer must manage and the risks it retains. Investors buying a project under development should check which model the developer chose, because interface risks between trades often surface only during completion and acceptance.

The VOB/B is used in most projects with professional parties. It contains detailed rules on variations, additional work, hindrances, acceptance, defects, payment and termination. If the VOB/B is agreed as a whole without material deviations, its individual clauses are not reviewed under the strict rules on standard business terms; if the parties deviate from it, the clauses become subject to that review under §§ 305 to 310 BGB, which can invalidate provisions such as the shorter limitation period for defects. Many contracts therefore combine the VOB/B with project-specific conditions, which requires careful drafting.

Variations and pricing

Variations are the most frequent source of disputes in German construction law. Under the BGB, if the employer requests a change to the agreed result or a change necessary to achieve it, the parties must first try to agree on the change and the adjustment of the price, and the contractor must submit an offer. If no agreement is reached within 30 days of the request reaching the contractor, the employer may order the change in text form (§ 650b BGB). The contractor must comply, unless a change to the agreed result is unreasonable for it.

The additional or reduced remuneration is calculated on the basis of the actual necessary costs with reasonable surcharges for general overheads, risk and profit, or by reference to a calculation deposited at the time of contracting (§ 650c(1), (2) BGB).

Pending agreement or a court decision, the contractor may include 80% of its offered additional price in interim payment claims (§ 650c(3) BGB). To avoid stalemates on site, either party may apply for an interim injunction on the right to order a change or on the price adjustment; once construction has started, it is not necessary to show urgency (§ 650d BGB). Under the VOB/B, the employer may order changes and necessary additional work unilaterally, with price adjustments derived from the original price calculation. Our insight on variations under the VOB/B and BGB compares both regimes.

Acceptance, defects and limitation

Acceptance (Abnahme) is the pivotal event in German construction law. It shifts the risk of accidental loss to the employer, makes the final payment due, starts the limitation period for defect claims and shifts the burden of proof for defects to the employer. The employer must accept the work if it has been completed in accordance with the contract; acceptance may not be refused because of insignificant defects. If the contractor sets a reasonable deadline after completion and the employer does not refuse acceptance within it by naming at least one defect, the work is deemed accepted (§ 640(2) BGB), with additional information requirements towards consumers.

The employer's rights for defects are subsequent performance, self-remedy with reimbursement of costs and an advance on those costs, withdrawal, price reduction and damages (§§ 634, 637 BGB).

Claims for defects in buildings become time-barred five years after acceptance (§ 634a(1) no. 2 BGB); under the VOB/B the default period is four years, unless the parties agree otherwise. Since a 2018 change in the case law of the Federal Court of Justice, an employer under a contract for work who does not have a defect repaired can no longer measure its damages by notional repair costs, but may claim the reduction in value or an advance for repair costs. Our insight on construction defects claims explains the remedies.

Delay, disruption and security

Delay and disruption claims require detailed evidence. A contractor that is hindered in its work must, under the VOB/B, notify the hindrance in writing to obtain an extension of time and may claim compensation where the employer is responsible. German courts expect the contractor to show, for each hindrance, its actual effect on the construction schedule and the resulting costs; global claims are rarely successful.

Employers, conversely, claim liquidated damages (contractual penalties), which in standard terms are generally capped by case law at a percentage of the contract sum, and damages for delay. Contemporaneous records, updated schedules and well-kept correspondence are therefore the basis of any successful claim or defence, and many parties now use dedicated claims management software and regular schedule updates agreed with the other side.

Contractors have strong statutory security rights. They can demand security for unpaid remuneration, including for additional work, plus 10% for ancillary claims, usually in the form of a bank guarantee (§ 650f BGB). If the employer fails to provide security, the contractor may stop work or terminate. Contractors can also demand a security mortgage on the employer's construction site (§ 650e BGB). Employers in turn secure performance and warranty claims through guarantees and retentions agreed in the contract, subject to limits developed by the case law for standard terms.

In German construction law, price escalation clauses have gained importance since the material price increases of recent years. Long-term contracts should address cost increases for key materials and energy expressly, because the general doctrine of frustration of contract (§ 313 BGB) provides relief only in exceptional cases and its outcome is uncertain.

Ground conditions and design risk

Under German construction law, the employer generally bears the risk of the building ground it provides, and the risk of its own design, unless the contract shifts these risks to the contractor. Design-and-build contracts and lump-sum price agreements (Pauschalpreisvertrag) transfer more risk, but even then the scope of the transferred risk depends on the precise wording and the information available at contracting. Ground surveys, a clear description of works and a defined process for unforeseen conditions are the best protection for both sides, especially in brownfield redevelopment where contamination and old foundations are common.

Consumer construction contracts

Contracts with consumers for the construction of a new building or substantial conversion work are consumer construction contracts that require text form (§ 650i BGB). The contractor must provide a construction description and a binding completion date, and the consumer has a statutory right of withdrawal unless the contract was notarially recorded (§ 650l BGB). Interim payments may not exceed 90% of the total remuneration, and the consumer is entitled to security of 5% for timely completion without material defects (§ 650m BGB). Developers selling new homes usually use notarial property developer contracts, which follow additional rules.

Architects' and engineers' contracts and the HOAI

Architects' and engineers' contracts are governed by §§ 650p to 650t BGB. Where essential planning and monitoring objectives have not yet been agreed, the architect first prepares a planning basis, after which the employer may terminate within two weeks (§ 650r BGB). Architects and engineers are jointly liable with contractors for defects in certain cases, but may require the employer to pursue the contractor first for defects in the construction (§ 650t BGB).

The HOAI sets out services and fee tables for planning services. Following the CJEU's judgment of 4 July 2019 (Commission v Germany, C-377/17), which found that binding minimum and maximum fees infringed the Services Directive, the HOAI was amended with effect from 1 January 2021: fee tables now provide orientation values, and fees can be agreed freely in text form. Without a fee agreement in text form, the basic fee rate applies. See our insight on architects' and engineers' fees after the HOAI reform.

Insurance and payment

Construction projects in Germany are typically insured through a combination of the contractor's liability insurance, construction all-risks insurance (Bauleistungsversicherung) and, for planners, professional indemnity insurance. The contract should specify who takes out which policy, minimum cover and the treatment of deductibles. Payment terms usually provide for interim payments according to progress (§ 632a BGB) or a payment plan, with a final account after acceptance. Disputes over the final account often concern variations, quantities and deductions for defects, so a disciplined approach to documenting each change order pays off at the end of the project.

Construction law disputes and dispute resolution

Construction disputes in Germany are often long and expert-heavy. The regional courts must have specialised civil chambers for disputes arising from construction, architects' and related engineering contracts (§ 72a of the Courts Constitution Act, GVG), and the higher regional courts have specialised senates. Independent evidence proceedings allow the condition of works to be recorded by a court-appointed expert before or outside main proceedings and suspend limitation. Large-value disputes may also be heard by the new commercial courts where the federal states have set them up.

Germany has no statutory adjudication scheme comparable to that in the United Kingdom, so fast-track mechanisms must be agreed in the contract. Options include dispute boards, binding expert determination, which is enforceable unless obviously inequitable (§ 319 BGB), conciliation and arbitration. Arbitration is common in international and large infrastructure projects; awards can be set aside only on limited grounds within three months (§ 1059 ZPO). Our insight on construction disputes and adjudication discusses the options, and our disputes page covers litigation and arbitration generally.

Illustration: a hypothetical logistics developer engages a general contractor under the VOB/B for a warehouse. Midway through construction, the tenant requests a larger loading area. The developer orders the change, the contractor claims a price increase based on its original calculation plus disruption costs, and the parties disagree. The contract's dispute board gives a provisional decision within weeks, allowing work to continue, while either party remains free to take the dispute to court later.

How TRW & Co helps

We advise employers, developers, investors, contractors and planners on construction law in Germany, for buildings, industrial plants and infrastructure. We structure project delivery models, draft and negotiate construction, general contractor, architects' and engineers' contracts based on the BGB and VOB/B, and advise on security, insurance and price adjustment clauses. During projects, we support claims management for variations, delay and disruption, and defects, and help prevent escalation. When disputes arise, we represent clients in independent evidence proceedings, court litigation, arbitration and before dispute boards. To discuss a project, please contact us. This page is general information and not legal advice.