FIDIC, ORGALIME, ABA99, MF/1, SIA and other General Conditions for the Construction Industry

M. Strobel, Attorney

As mentioned in the last article there exists a considerable variety of standardized General Conditions for the Construction Industry. On international level the FIDIC conditions are the mostly used and best known such conditions. In Scandinavia the ABA 99 documents are often applied and in the UK the MF/1 conditions. In Switzerland SIA is well known and used in almost all construction projects.

These (and other) standardized conditions facilitate the international as well as the national collaboration between employers and contractors.

Experience (, however, shows two “phenomenon”:

  1. The ORGALIME conditions seem to be applied rather rarely. A lot of contractors do not even know that those conditions exist. Although the ORGALIME conditions are more contractor friendly than most of the other such general conditions. It is in any event worth to study them and to propose them as an alternative (and compromise) to general conditions provided by the employer.
  2. Many contractors just accept the above mentioned standardized conditions without even trying to negotiate certain articles or clauses. They want to avoid lengthy negotiations and are of the opinion that those conditions are in any event fair and balanced. From a neutral point of view this might be partly correct. However, projects in general are not standardized but custom made and special. Those general conditions in many cases do therefore not fully reflect the interests of the parties. It is again worthwhile to invest some time to read and understand such general conditions and to carefully check whether all articles and clauses do make sense compared to one’s project and the risks involved.

To introduce certain minimum contract standards and to put together a checklist of “killer issues” or “hot topics” contained in standardized General Conditions reduces on one hand time and efforts for negotiations and on the other hand is a striking tool to reduce commercial risks.

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Minimum Contract Standards

M. Strobel, Attorney

In the plant construction industry a lot of standard contracts are available: SIA, ORGLIME, FIDIC, and others. Quite often customers propose to use their own “Special” or “General Conditions” and to apply those standard contracts complementary. This may lead to situations where it gets really difficult (at least for a layman, but not only!) to understand the contractual basis of a deal.

Under such circumstances a checklist with some minimum legal standards to be followed may help to mitigate the risk to enter into a really bad contract. Based on experience such list may contain the following topics:

  • No performance prior to signing / entering into force of a contract
  • Warranty to be clearly defined: contents / time
  • Indemnity obligations to be limited to negligence
  • Overall liability has to be capped / limited and liability for consequential / indirect damages must be excluded
  • Changes of law or by customer: Customer to bear risks and costs
  • Force Majeure Clause is mandatory
  • Liability for infringement of intellectual property should be limited
  • Liability for soil condition and local infrastructure must be excluded
  • One sided confidentiality clauses are not acceptable
  • Arbitration instead of ordinary courts is recommended

Such list is of course dependent on the specific business but many years of experience show that the above topics are those who may create the most “headache” after signing of the contract. It is worthwhile to invest some thoughts in such checklist and to train employees accordingly.

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Establishing a Company in Switzerland

M. Strobel, Attorney

Establishing a new company in Switzerland is as such quite easy. However, practical life often looks different.

Assuming that the question whether a GmbH (limited liability company) or an AG (stock corporation) or any other possible legal form shall be established has been answered, one of the next and key question is who shall act as the founders / investors. This seems to be an easy question. But when one starts to list the formalities requested if foreign investors are involved things often do not look too easy anymore. Things are getting even more complicated if investors from several different countries are involved.

Organizing signatures, board and / or shareholder resolutions, confirmations from embassies and /or from local authorities and the notarization and legalization of documents, etc. may take a lot of time! This may not be of concern if the establishment of the new company is not of a high priority. However, if time is of essence other ways have to be found to speed up the process.

One possible approach is to mandate a member of the management of the new company to act as the founder of the new company. Such member of the management shall reside in Switzerland. If this is not yet the case a third party might be mandated. The share capital required shall be paid by the investors to the mandated party for the sole and exclusive purpose to establish the company. Once the company is established the shares / equity shall be transferred to the investors.

The approach as described in the preceding paragraph of course needs to be reviewed in detail in every single case including any possible tax implications.

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Public Procurement Procedure in Switzerland

M. Strobel, Attorney
In the course of the last few years the Swiss authorities have started to apply the rules and regulations on public procurement in an even more stringent way. Jurisprudence has also become more consistent.

Some issues which pop up regularly in the course of such procurement procedures are: “dumping” bids, changes of the bid during the procurement procedure and the prior involvement of the bidder awarded with the contract.

The latter topic (prior involvement) is one which is often not considered (enough) by bidders and authorities when initiating the procurement process. Prior involvement leads to the exclusion of the according bidder form the public procurement process if the bidder (i) has been involved in the elaboration of the basic principles of a project, (ii) has drafted (partly or in total) the tender documents or (iii) evaluated other bids.

The procuring authorities – but also bidders – very often need the assistance i.e. the knowhow of specialized consultants or experienced companies. From elaboration of the tender documents through the evaluation of bids. Such consultants and companies quite often submit a bid themselves. Knowing the potential problems which such bids may create some authorities started to officially inform all the other bidders of the situation in the tender documents. The authorities even asked the other bidders to waive their right to an appeal!

This approach was not approved by the courts. Such public procurement procedures have to be stopped and restarted.

Prior involvements are severely punished by the courts and nowadays even the semblance of a prior involvement may lead to an annulment of the procurement procedure.

As a bidder it may well be worth to lodge an appeal if one gets the impression that another bidder has already been involved before.

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Matrimonial Property Regime in Switzerland

M. Strobel, Attorney
Experience shows that a lot of expatriate managers and other foreign employees make mistakes when their marriages end, because they do not know well enough – or not at all – the Swiss matrimonial property regime and also lack knowledge concerning the matrimonial property regime of their home countries.
Entering into a private separation agreement i.e. a separation agreement which has not been approved by a court without knowing the basics of such regimes can be highly detrimental.

The Swiss matrimonial property regime consists of the following three alternatives:

– Community of acquired gains;
– Community of property; and
– Separate property.

The English terms used differ sometimes depending on the author but those listed here are probably the ones used most.

When negotiating a private separation agreement the issue of the estate brought in by the spouses is often neglected, too.

All this can – if not properly handled in the separation phase – lead to unnecessary and often very tough discussions during the divorce process.

Despite the fact that it seems to be preferable to negotiate a private separation agreement and not to start legal proceedings from the beginning, it might well be worth to initiate a marriage protection procedure with the competent courts or to at least seek legal advice before entering into any specious private agreement. A marriage protection procedure is a fast procedure and the court has to investigate and clarify on its own motion figures and facts. Many courts even provide standard forms for such protection procedures which can easily be filled in by laymen.

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Non-Compete Clauses in Employment Contracts

M. Strobel, Lawyer


An employee may undertake in writing to not engaging in any competing activities with the employer after the expiry of the employment. This may include in particular to refraining from running a competing business for his own benefit or from working for or participating in such business.

However, such prohibition of competition is binding only if certain conditions are fulfilled: The employment relationship must allow the employee to get knowledge of the employer’s clients or manufacturing and trade secrets. And the use of such knowledge must be suitable to cause the employer substantial harm.

The prohibition must further be restricted with regard to scope, time and place in a way that it does not unfairly hinder the employee’s future economic activities. It may in general not exceed a maximum period of three years. The prohibition shall also not extend beyond the employer’s area of activity and the geographical limitation shall be restricted to the circle of customers or market in which the company is active.

A non-compete clause in an employment contract which does not meet all of these conditions is null and void. Non-compete clauses may also not apply to employees that provide services to clients that are characterized by a strong personal component. The difficulty here obviously is to define the professions / functions that imply such a strong personal component.

Employees who violate non-compete clauses have to compensate their employers for the loss incurred. Accordingly the employer has to prove the loss which is not always easy. A contractual penalty for the violation of the non-compete clause has therefore almost become a standard clause in many employment contracts with sales people, technical or other specialists and senior management members.
In the event of a violation of a non-compete clause, employers may demand payment of the specified amount of the penalty. The Swiss Supreme Court has ruled that such contractual penalty shall generally not exceed half of the annual salary. The amount must be a specified amount; the provision in the employment contract of only a maximum amount is not allowed.

Non-compete clauses have to be carefully examined since their validity will depend on the particular relationship between employer and employee. The key question thereby is: Does the non-compete clause hinder the employee’s economic future? Courts will be very reluctant to enforce a non-compete clause if the latter is the case.

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Legacy Tax in Germany

Inheritance taxMartin Strobel, Lawyer

Why simple if it works complicated, too?

The recently adopted new law on legacy or inheritance tax in Germany is the result of a ruling by the German Supreme Court. The privileges provide in the existing legacy tax law for family owned companies according to the judgement of the Court were much too broad and needed to be tightened.

The outcome is a complicated law that will be highly appreciated by tax lawyers and tax Consultants!

So far heirs of companies with up to 20 employees and which existed for more than seven years were exempt from the legacy tax. 90% of the companies in Germany fall under this threshold. Under the new law the existing tax exemption remains applicable for companies with up to three employees and an existence of 7 years. From 4 employees on upward a quite complicated system starts. The sum of salaries comes into play and the sometimes tricky question whether a company is a family owned or run business is now an important issue. These are only a few examples of the changes provided for in the new legacy tax law.

German annotators agree: The new law might perhaps satisfy the requirement of the ruling of the Supreme Court but is far from being suitable for practical life. They recommend a total revision and it is quite probable that such total revision will be initiated via parliament in the future. Beside complexity also insecurity reigns.

A few weeks ago the introduction of a nation-wide legacy tax has been rejected by voters in Switzerland (with a huge majority). For family owned or run companies it might well be worth to investigate the tax situation in details before investing abroad!

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Driving under the influence (DUI)

alcoholStefanie Rohr, MLaw Lawyer

Driving under influence (DUI) also known as drunk driving is when a perpetrator drives a motor vehicle while impaired by alcohol or other drugs including those prescribed by physicians, to a level that renders a driver incapable from operating a motor vehicle safely.
In Switzerland the legal alcohol limit is 0.5 per mill blood alcohol content (BAC). Above 0.5 per mill a person operating a motor vehicle can be fined and sentenced for the crime of DUI. A BAC between 0.5 per mill and 0.79 per mill is considered a simple DUI, while a BAC of 0.8 per mill and above is considered a qualified DUI.

If a driver is apprehended with a qualified DUI the criminal offence is aggravated. The criminal sentence or fine accordingly will be higher. Furthermore the driving license can be confiscated by the Road Traffic Licensing Department. The Road Traffic Licensing Department will then usually issue an order that the license will only be handed out under verification of alcohol abstinence through a specially licensed doctor and / or after psychological treatment for alcohol abuse has been undergone by the apprehended driver.

By problems with Swiss Authorities be they criminal or otherwise, SLP will gladly present your case.

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Swiss employment law: Fired on sick leave?

Employee Rightsby Stefanie Rohr

The Swiss Code of Obligations (OR) regulates when an employer can fire or lay off an employee.

Art. 336c OR states that an employee may not be fired after his probationary period (a) for four weeks during the employees leave due to obligational military service, (b) during sick leave for a period of 30 days in his first year of employment, for 90 days in his second to fifth year of employment and for 180 days in his six or more year of employment, (c) for 16 weeks after giving birth.

Therefore if an employer gives notice of termination during sick leave, this is forbidden under the Swiss Code of Obligations. If an employer still gives notice of termination during this time the notice of termination is automatically void.

However if an employee is fired and then becomes sick during the period of notice, the period of notice will be halted and will be extended as long as the employee is sick but not longer than stated in Art. 336c OR. After the employee is healthy again and can return to work or once the period mentioned in Art. 336c OR is expired, the period of notice will continue and then expire.

It is important to be aware of these forbidden periods of notice as an extended period of notice may also entitle the employee to a longer period of employee leave benefits or wages.

If your notice of termination was given to you during or around sick leave, it is advisable to let the termination be checked by a lawyer. SLP will gladly answer your queries.

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Indirect and consequential loss clauses under Swiss Law

Martin Strobel, Lawyer

More and more contracts under Swiss law are written in English since international business grows. The difficulty with drafting such contracts is to using terms for Swiss law concepts, which originate from common law notions. The use of such common law notions may fulfil certain expectations of the parties involved (e.g. finding the same terms in all international contracts) but on the other hand includes the risk that such language may be interpreted differently with a Swiss law background.

One of the best example to show this is the regularly used clause dealing with the exclusion of “indirect or consequential damages”. The clause may (in a simple version) read as follows: “Neither Party shall be liable to the other Party for any indirect or consequential damages whatsoever.” The obvious intention of such language is to exclude the seller’s participation in the economic risk of the buyer, which concept is as such widely accepted in the industry. One or perhaps the most important question in connection with such a clause is whether seller’s liability for loss of profit of the buyer is excluded. This question is answered differently under common law and Swiss law. Whilst under common law – always subject to the wording in the contract and the specific circumstances – loss of profits is recoverable as a direct loss, under Swiss law the situation is more complex. Depending on the basis of a claim (tort, contract, defects in work) the terms “indirect” or “consequential” have defined meanings which is not the case under common law. The general rule under Swiss law whereby liability is limited to losses which have an adequate link with the damaging event (therefore loss of profit resulting from a defect is considered as indirect damage) may be overruled by such definitions.
The wording of such an exclusion clause has to be carefully drafted. It seems that in most cases it makes sense to refer to specific categories of damages or losses and to not only rely on the wording mentioned above.

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