Construction Contract: Contractor's Delay

Construction contract and contractor's delay: how to protect yourself

Anyone commissioning the construction of a property or the completion of a work knows how important it is to meet deadlines. The contractor's delay remains one of the most common problems in Swiss construction law. The legal consequences, however, vary considerably depending on the specific situation: has the delivery deadline already passed, or is the delay merely foreseeable? The distinction is far from academic. Choosing the wrong strategy can prove extremely costly.

Actual delay: the delivery deadline has expired

When the contractor fails to deliver the work within the agreed deadline, the principal must refer to Art. 102 et seq. CO. Art. 366 para. 1 CO does not apply in this case; that provision concerns the situation of foreseeable delay discussed further below.

The principal must proceed step by step. The first step consists in giving the contractor formal notice, that is, placing the contractor in default. This notice is not required where the contract specifies a precise delivery date (for example, "delivery: 30 March 2025"): in that case, default occurs automatically upon expiry of the deadline. In all other cases, a written communication sent by registered post is indispensable.

The second requirement concerns the attributability of the delay. The delay must be attributable to the contractor or its auxiliaries, including subcontractors. If, on the other hand, the principal itself is late with payments, the contractor is not in default. This point is often underestimated in practice.

Finally, the principal must grant an appropriate additional period for performance. This period may be set in the same notice of default, thereby avoiding a double dispatch. In case of doubt, Haab Legal always recommends setting an additional period, even where the law does not appear to require it expressly.

The three options after expiry of the additional period

If the contractor still fails to perform within the additional period, the principal has three alternatives under Art. 107 para. 2 CO. The choice is final and must be weighed with the utmost care.

First option: insist on performance. The principal continues to demand execution of the work and claims damages caused by the delay. Consider, for example, lost rental income because a property was not completed on time. If the principal does not communicate anything after expiry of the additional period, the law presumes that this option has been chosen. If the contractor persists in non-performance, the principal may subsequently switch to one of the other two options.

Second option: withdraw from the contract. The declaration of withdrawal must be communicated immediately after expiry of the additional period. Withdrawal operates "ex tunc", meaning that performances already rendered must, in principle, be returned. In the construction sector, however, restitution is often materially impossible: a wall already erected cannot be "returned". In such cases, withdrawal produces the effects of a termination ("ex nunc"): the principal keeps the partial work but pays for the work performed. Hugo Haab notes that this option is advisable only when the works are still at an early stage. There is one critical aspect to consider: by choosing withdrawal, the costs of engaging a new contractor are not recoverable. Anyone wishing to continue the work with another contractor should look to the third option.

Third option: waiver of performance with damages. This declaration must also be communicated immediately after expiry of the additional period. The principal waives the outstanding performance and claims full compensation for the costs arising from non-performance. Unlike withdrawal, this option allows recovery of the costs incurred in entrusting the completion of the work to a third-party contractor. In practice, this is often the most advantageous choice for a principal who wishes to bring the project to completion.

Roberto Haab emphasises how important it is to reflect thoroughly before communicating one's choice. A hasty decision can have severe financial consequences and compromise one's procedural position in any subsequent litigation.

Foreseeable delay: the deadline has not yet expired

It is not always necessary to wait for the deadline to expire before taking action. Art. 366 CO offers the principal a preventive remedy when the delay is reasonably foreseeable, for instance where the contractor does not commence works on the agreed date or slows down execution in an objectively unjustified manner.

A word of caution, however: the wording of Art. 366 para. 1 CO is misleading. Read literally, it appears to allow the principal to withdraw from the contract without further formalities. Case law and the prevailing doctrine, however, require compliance with the procedure set out in Art. 107 para. 2 CO: formal notice, additional period, and then the choice among the three options described above.

A principal who withdrew from the contract relying solely on the wording of Art. 366 para. 1 CO, without prior formal notice and without an additional period, would commit a serious error. That withdrawal would in all likelihood be reclassified as a termination under Art. 377 CO. The consequences would be severe: the principal would have to hold the contractor entirely harmless, paying the full contractual price without receiving the performance. A paradoxical result, yet one that accords with the letter of the law.

Why preventive legal advice makes the difference

Swiss construction contract law offers effective remedies to the principal confronted with a contractor in delay. The difficulty lies in execution: the formalities to be observed are precise, the deadlines strict, and the choice among the three options under Art. 107 CO is irreversible. Acting without legal assistance means exposing oneself to risks that are disproportionate to the cost of timely advice.

Contact us

Studio Legale e Notarile Haab in Lugano regularly assists principals and construction firms in disputes arising from construction contracts. Hugo Haab and Roberto Haab have extensive experience in construction law and can guide you in selecting the strategy best suited to your case. Contact us for a consultation.

For a personal consultation: info@haablegal.ch | +41 91 913 30 70