What legislation or regulations govern security of payment in construction contracts?
Sweden does not have a statutory framework specifically governing construction contracts between commercial parties. Instead, security of payment in the construction sector operates primarily on a contractual basis, with parties commonly relying on standard industry agreements to establish their rights and obligations.
The standard agreements AB 04 General Conditions of Contract for Building and Civil Engineering Works and Building Services and ABT 06 General Conditions of Contract for Design and Construct Contracts for Building, Civil Engineering and Installation Works are commonly used within the construction sector.
Under both AB 04 and ABT 06, neither party bears a general obligation to provide security of payment in construction contracts. Nevertheless, these standard agreements include a default provision (Chapter 6, § 21) that governs sureties when specifically stipulated in the particular agreement between the contracting parties.
Consumer construction contracts, by contrast, are governed by the Consumer Services Act, though this legislation similarly does not mandate security of payment provisions for contractors. For new constructions and major renovations, consumers and contractors may establish a construction credit (Sw. byggnadskreditiv) to provide payment security. Under this arrangement, a bank grants credit facilities available throughout the construction period, with a payment escrow mechanism that reserves portions of the credit for the contractor. Funds are released progressively, typically corresponding to construction milestones and upon receipt of contractor invoices.
What framework is put in place to protect monies intended for progress payments?
Are project bank accounts required?
There is no legislation or standard agreement requiring project bank accounts. It is up to the parties to agree on such requirements.
Are retention monies quarantined?
Retention monies are not quarantined by legislation or standard agreements. It is up to the parties to agree on such quarantining.
Are retention monies regimes prohibited?
If agreed by the parties, the use of retention monies regimes is permitted. For example, AB 04/ABT 06 chapter 6 §§ 12 and 15 stipulate the developer's right to withhold payment as security for future rectification of defects.
Can a contractor or subcontractor impose a lien or other form of security over the works or other assets of the developer?
In the event of the developer's imminent bankruptcy, the contractor should secure possession (ie, physical access to) and separation of movable property at the work site to avoid losing ownership of such property to the bankruptcy estate (Chapter 3, Section 3 of the Swedish Bankruptcy Act (1987:672)). However, the contractor has no right to claim the developer's assets.
What impact has the legislation or regulation had on the construction sector and insolvencies?
There is no construction-specific legislation regulating this matter.
What, if any, reforms are being considered?
No legislative reforms are currently under consideration in this area.
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