• Search

Construction Arbitration

Last verified on Friday 21st July 2017

Italy

Valentine Chessa and Antonio Musella

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

    1. Italy is a civil law jurisdiction. The sources of law are the Constitution, regional statutes, international treaties, European directions as well as European regulations, laws, parliamentary rules, decree-laws, legislative decrees, regulations, case-law of higher courts as well as customs and practices. Since Italy is a member of the European Union, legislation from the European Union has a direct impact on the Italian legal system pursuant to article 117 of the Italian Constitution.   

      Laws are passed by the Italian parliament or by regional administrations – those have residual jurisdiction – respectively pursuant to articles 70 and 117 of the Italian Constitution. The Italian government may enact decree laws in urgent and extraordinary situations, but they have to be confirmed by the Parliament, otherwise they will be revoked. The government has the power to pass regulations at both national and regional level on matters that are not reserved to the Italian parliament.

      New laws are published in the Gazzetta Ufficiale and normally enter into force 15 days after their publication pursuant to article 73 of the Constitution.     

      Generally, laws cannot be passed with a retrospective effect. However, a derogation to this principle is possible in specific circumstances based on the criteria of reasonableness and greater justice. 

    Contract formation

  2. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

    1. As for any other contract, the consent of the parties is required for a construction contract to be formed. The consent generally consists of an exchange of offer and acceptance. Other requirements provided in article 1325 of the Italian Civil Code are valid “consideration” and lawful contents of the contract. In principle, illicit agreements do not have legal effects.   

      Usually, construction contracts do not require a particular form, but the written form is required for contracts stipulated with state entities and for contracts that have specific effects such as the transfer of a real estate property (eg, construction of a building on a soil owned by the contractor). The written form is also required for construction contracts of vessels or aircraft of a certain size (articles 237 and 852 cc).

      A letter of intent does not have a binding contractual effect. It only creates an obligation to negotiate in good faith. However, judges may not take in consideration the parties’ qualification if they consider that the parties had the intention of creating a binding commitment. 

    Choice of laws, seat, arbitrator and language

  3. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

    1. Parties are free to choose any of the above, as long as their choice does not exclude any mandatory provisions of Italian law or affect public order (see question 40).

    Implied terms

  4. 4.

    How might terms be implied into construction contracts? What terms might be implied?

    1. Articles 1655–1677 of the Italian Civil Code may be implied into a construction contract in relation to certain aspects of the contract unless otherwise agreed by the parties. These provisions relate to several matters such as obligations owed by the parties, variations, responsibility and contractual remedies.

      In addition, when the employer is a state entity or public authority, specific rules are implied in the contract (see question 48).

    Certifiers

  5. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

    1. A certifier, for example, a site supervisor, must always act in compliance with the principle of good faith, pursuant to article 1375 of the Italian Civil Code as reagrds the parties.

      Generally, the parties are not bound by certificates, unless it is provided by the contract. However, if the certifier acts on behalf of one of the parties, the certificate becomes binding for that party. Nonetheless, as the current case law denies the value of res judicata to certificates, a court or arbitral tribunal is not bound by the outcome and the reasoning of the certificate.

      Proceedings against the certifier may be initiated by both the contractor and the employer in relation to its obligations. 

    Competing causes of delay

  6. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

    1. The hypothesis of competing – but independent – causes of delay is not expressly regulated by Italian laws.

      However, pursuant to article 1661 of the Italian Civil Code, variations can be requested by the employer provided that they are not “significant and important” and that their amount does not exceed a sixth of the agreed total price (Cass. no. 9796/2011). Case law has decided that in the absence of an agreement of the parties on the extension, it is for the employer to prove a negligence of the contractor.

      This topic is also addressed by more general provisions of the Italian Civil Code.

      In fact, should the contractor cause a delay, not agreed by the employer, it will be liable for the damages according to the general provisions of the Italian Civil Code. In this respect, article 1218 of the Italian Civil Code provides that the party that does not comply with the agreement is responsible for the damages unless it is able to prove that the delay was determined by reasons that are not attributable to it. Pursuant to article 1227 of the Italian Civil Code, should the delay be due to the negligence of the employer, the liability of the contractor shall be excluded.

    Disruption

  7. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

    1. Disruption is not directly regulated by Italian laws. Consequently, the general principles of contractual liability, pursuant to article 1218, may apply (see above).

      If the proof of the quantum of the damages is not possible or uncertain, Italian judges have the discretional power to determine them on an equitable basis, as provided by article 1226 of the Italian Civil Code and confirmed by recent case law.

    Acceleration

  8. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

    1. Italian law does not specifically regulate constructive acceleration, but the contractor may try to invoke the employer’s contractual responsibility. In this case, the contractor has to prove that the employer had to grant the extension of time and that specific costs resulted from the acceleration.

      If the employer acted in bad faith, the contractor’s claim is more likely to succeed, pursuant to article 1375 of the Italian Civil Code, which provides a general duty of good faith in the performance of the contract.

    Force majeure and hardship

  9. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

    1. Article 1672 of the Italian Civil Code regulates the impossibility to perform construction contracts for force majeure events.

      Such events determining the impossibility have to be:

      • posterior to the contract’s conclusion;
      • absolute;
      • permanent; and
      • not attributable to the parties.

      If all these requirements are fulfilled, the contract is terminated but the employer has to pay the part of the project already completed by the contractor in proportion to its utility and to the price agreed for the entire project. 

      Pursuant to article 1464, if the performance of the contract has only become partially impossible, the contract can be either adjusted or terminated. 

      These rules may be excluded by agreement as these are not public order provisions.

  10. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

    1. Article 1664 of the Italian Civil Code states that unforeseeable circumstances, which leads to an increase of more than 10 per cent in the price, allow the contractor to ask for a price revision. A revision can only be granted for the increase avoce the 10 per cent.

      Moreover, if the execution of the contract has become considerably more onerous for the contractor, for reasons not initially foreseen, it has the right to a fair compensation.

      Nevertheless, these rules may be excluded by an agreement between the parties. 

    Impossibility

  11. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

    1. On the basis of article 1346 of the Italian Civil Code, the object of the contract must be possible. Thus, the impossibility of achieving a particular aspect of the contractual specification, if the parties did not foresee it, entails a partial or total invalidity of the contract. The contractor is responsible, if the nullity of the contract has been caused by an event to which it contributed.

      When the impossibility of the contractor achieving an aspect of the agreement is not due to external events and occurs after the contract is concluded, the contractor is not entitled to relief. Pursuant to article 1218 of the Italian Civil Code, the contractor is responsible if the non-compliance is caused by an event to which it contributed.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

    1. Contractual provisions that seek to pass risk to the contractor are in principle valid and effective. However, actions such as providing documents with errors would be against the principle of good faith, which thus limits the transfer of risk. 

    Duty to warn

  13. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?

    1. The contractor has the obligation to carry out the works in accordance with the best practice. If the contractor fails to point out errors in the design it may be considered responsible. The extent of the contractor’s duty, however, is limited to errors that may be detected with reasonable diligence. Case law has imposed a duty upon the contractor to warn the employer of errors in the design as soon as such errors are known by the contractor.

    Good faith

  14. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

    1. On the basis of article 1375 of the Italian Civil Code the contract must be executed in good faith. As a result:

      • The employer is allowed to intervene in the works, but an unreasonable level of intervention may constitute a violation of its obligations under the contract.
      • The right to terminate or suspend the contract must not be arbitrary (Cass. No. 13208/2010).
      • The employer is allowed to claim pre-agreed sums under the contract. However, if the amount is manifestly too high a judge may exceptionally reduce it in accordance with the article 1384. 

    Time bars

  15. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

    1. Italian law provides that the contractor shall notify the defects to the employer within 60 days from the their discovery or within one year in the case of construction of buildings. According to case law, the parties can derogate from such time bars as this limitation is not a public order provision. This limit applies when the employer seeks the responsibility of the contractor: reduction of the price, the reparation at the contractor’s expense, termination of the contract due to negligence of the contractor or damages.

      In addition, article 2965 of the Italian Civil Code states that clauses establishing terms which make one party’s rights excessively onerous to exercise are void.

      There are no differences depending on the cases specified in the question. 

    Suspension

  16. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

    1. On the basis of article 1460 of the Italian Civil Code both the parties may refuse to perform the contract if the respective other side is not executing its own obligations. This right has to be exercised within the limits of good faith. 

    Omissions and termination for convenience

  17. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

    1. Pursuant to article 1671 of the Italian Civil Code the employer may terminate the contract, even if the contractor has already begun the execution of the work, as long as the contractor is compensated for costs incurred and the loss of profits. In these circumstances, the employer may, at its own discretion, terminate the contract at any time and at any stage in the performance of the work.

      In addition, the employer may terminate the contract when, for the execution of the works, some serious variations are needed. In this case, as established by article 1660 of the Italian Civil Code, the employer has to provide a fair compensation to the contractor.  

    Termination

  18. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

    1. Pursuant to the general principle provided by article 1453 of the Italian Civil Code, a contract may be terminated by both parties in case of breach. In principle a partial termination is possible, but it may be excluded in some cases (eg, works that are useless if executed only in part). Usually the termination has a retroactive effect on the whole works unless the party ask for a partial termination which has no impact on those already completed.

      If the contract is validly terminated, both parties are discharged from their obligations. The party which has lawfully terminated the contract is also entitled to be compensated for the losses caused by the non-performance.

      The parties may provide an agreed termination clause that does not require the intervention of a judge to be effective (ie, the contract is terminated automatically).

  19. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

    1. As mentioned in question 18, in addition to contractual termination rights, the parties have a right to terminate the contract on the basis of a sufficiently serious breach according to article 1455 of the Italian Civil Code. Moreover, article 1668 of the Italian Civil Code states that the employer may ask for the termination of the contract, if the flaws in the works are such that it becomes unsuitable for its scope.

  20. 20.

    What limits apply to exercising termination rights?

    1. No particular limits apply to the exercise of termination rights, but the parties must always respect their duty of good faith. Termination cannot be requested while also requesting specific performance.

    Completion

  21. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

    1. Italian courts may consider this kind of behaviour of the employer as an implied acceptance of the works. Pursuant to case law, for the works to be considered completed, the employer must, not only have taken possession, but also have acted in a way that confirms that the works are considered completed (for instance, by using them).

  22. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

    1. Acceptance occurs when the employer expressly declares that the works were peformed as provided in the contract or when it acts, as pointed out in question 21, in a way that confirms that the works are to be considered completed. Therefore, taking over the work may constitute acceptance.

      Pursuant to article 1665 of the Italian Civil Code, if the contractor requires the employer to check the works and the employer does not react within a short time period, the works are considered accepted.

      Acceptance can be silent, where it can be inferred from the behaviour of the employer, such as the spontaneous unconditional payment of the agreed sum.

      It is possible to make a conditional acceptance.

      The acceptance of the works bars all the claims related to defects that were apparent in the moment of the acceptance, provided in this case, they have not been silenced in bad faith by the contractor, pursuant to article 1667 of the Italian Civil Code.

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

    1. Clauses related to liquidated damages are supposed to be the only remedy for all the employer’s losses determined by the delay or the non-performance of a contractual obligation. On the basis of article 1382 of the Italian Civil Code the parties may agree that the compensation of additional damages is not excluded.

      It should be noted that clauses limiting or capping liquidated damages do not apply in case of the contractor’s fraud, wilful misconduct or gross negligence. 

  24. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

    1. Pursuant to article 1227 of the Italian Civil Code, the employer is not entitled to liquidated damages. Article 1218 provides that the delay or the non-performance must be attributable to the contractor. 

  25. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

    1. On the basis of article 1384 of the Italian Civil Code the amount of liquidated damages may be lowered by a judge if the primary obligation of the contract has been executed at least in part or if the amount provided by the clause is manifestly too high. The interest of the employer in the performance of the contract is taken into account as the main factor to evaluate whether or not to lower the liquidated damages. The judge or arbitrator has wide discretion in deciding the other factors to be taken into account.

  26. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

    1. If the amount of liquidated damages is manifestly too low and the compensation of additional damages has been contractually excluded, a judge or arbitrator may declare the invalidity of such clause pursuant to article 1229 of the Italian Civil Code. Parties cannot exclude the contractual liability caused by gross negligence or intentional misconduct.

    Assessing damages and limitations and exclusions of liability

  27. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

    1. Pursuant to article 1223 of the Italian Civil Code, monetary compensation for breach of contract should take into account not only the actual damages, but also the lost profits. Therefore, if there is a direct connection between lost profits and the contractor’s behaviour, the contractor must provide the corresponding compensation. Pursuant to article 1225 of the Italian Civil Code, this may apply even to exceptionally high lost profits if they were foreseeable when the contract was executed.

  28. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

    1. If the rectification cost is excessively high, the contractor is not liable for remedying technically non-compliant work. In this case, pursuant to article 1668 of the Italian Civil Code, the judge/arbitrator has to establish a “reasonable” compensation. However, the parties may agree on a different regime.

      If the works are non-compliant with the contract, the employer can ask the contractor to (i) rectify the defects at its own expenses or (ii) be refunded for the rectification works. In the first hypothesis, the employer may not ask for works that were not set out in the agreement. In the second hypothesis, the rectification costs may not exceed the economic value of the woks foreseen in the contract should the works have been conducted properly. 

      Parties can agree on different regime which can be stricter for the contractor. Foreign decisions bearing punitive damages may be enforced in Italy, provided that the law of that foreign country provides for punitive damages in that specific case.

  29. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

    1. Pursuant to article 1667 of the Italian Civil Code, the contractor is required to remedy defects notified by the employer within two years from the acceptance and within 60 days from their discovery. Notification is not needed if the contractor has acknowledged the defects or has hidden them. After the expiration of this period, pursuant to article 1669, if the construction contract concerns buildings or other immovable properties, the contractor is liable for serious defects of the works within 10 years from the completion and one year from the discovery. This term may be postponed to the outcome of the technical assessments that are needed to understand the nature of the defects.

  30. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

    1. The concept of indirect or consequential loss is unknown in the Italian legal system. Therefore, the parties have to specify what kind of liability they want to exclude. In theory, it is possible to exclude the liability for lost profits or loss of production, provided that the clause does not apply in case of willful misconduct or gross negligence.

  31. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

    1. Pursuant to article 1229 of the Italian Civil Code, the exclusion or limitation of liability is not possible in case of wilful misconduct or gross negligence, irrespective of whether the contract specifies that the exclusion or limitation applies notwithstanding such behaviours. In addition, the exclusion or limitation is not valid if it is against public order. 

    Liens

  32. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

    1. Unless the lien is provided directly by the contract, the contractor has no right to claim a lien in the works it has carried out. 

    Subcontractors

  33. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

    1. Conditional payment is not per se forbidden by Italian law. For example, pay-when-paid clauses are generally interpreted as allowing that payment to subcontractors be executed only when the employer will pay for the works. However, agreements on the date for payment or on the consequences of late payment are void if they are manifestly unfair.

  34. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

    1. In principle, a subcontractor cannot claim against the employer for sums due by the contractor. However, the parties may agree otherwise or choose a foreign law allowing this kind of claim. 

  35. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

    1. In principle an employer may hold its contractor to their arbitration agreement even if their dispute concerns a subcontractor. The seat of the arbitration agreement does not have an impact in this respect.

    Third parties

  36. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Pursuant to 1372 of the Italian Civil Code a contract has effect only between the parties. However, as provided by article 1669 of the Italian Civil Code (see question 29) in case of buildings or other immovable properties, the ultimate owner may raise claims against the contractor for serious defects of the works within 10 years from their completion. Exclusion and limitations of liability may be possible within the limits specified in question 31.

  37. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Unless the contract specifically provides otherwise, affiliates, directors or employees will not be considered liable for delays, defects and payment. 

    Limitation and prescription periods

  38. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

    1. According to the general prescription rule, a claim for breach of a contract must be brought within 10 years of the date of the breach.

      Pursuant to article 1667 of the Italian Civil Code, the contractor is required to remedy defects notified by the employer within two years from the acceptance of the works and within 60 days from the discovery of the defects.

      However, article 1669 provides that, if the construction contract concerns buildings or other immovable properties planned for a long duration, the contractor is liable for serious defects of the works for 10 years from the completion of the works and for one year from the discovery of the defects. 

      As indicated above, the 60-days/one-year term may be postponed to the outcome of the technical assessments that are needed to assess the nature of the defects. 

      According to article 2943 of the Italian Civil Code, the prescription of two years (10 years for buildings) can be interrupted when the claim is filed before a court or even by a formal notice. However, the time limit of 60 days (one year for buildings) may not be interrupted or suspended.

      Pursuant to article 2936 of the Italian Civil Code, the prescription may not be derogated by the parties. The rule of prescription is substantive according to article 2934 of the Italian Civil Code. However, the judge may not raise the issue on its own motion.

    Other key laws

  39. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Contracts related to public works are regulated by a number of mandatory provisions. In particular, they must contain certain provisions safeguarding the public interest such as:

      • the application of certain penalties to the contractor in case of default;
      • the procedure for testing the due performance of the works;
      • the issuance of the guarantees in favor of the public body; or
      • the delivery by the contractor of the insurance policies requested in connection with the performance of the works.

      In addition, in case of insolvency, the Italian Code of Public Contracts sets some specific rules that cannot be excluded or modified.

      Other mandatory laws concern joint liability of the employer for obligations of the contractor for payment of an employee’s salary, social security and security contributions.

      As a result, provisions of the FIDIC Silver Book 1999 which would not operate include, for instance, clause 15.2 on termination by the employer for the bankruptcy, insolvency or liquidation of the contractor.

  40. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. Before the Italian courts, notwithstanding the fact that a foreign law governs the construction contract, Italian mandatory rules such as the liability of the contractor will apply. Similarly, securities against insolvency before completion are legally mandatory, they are provided by Law No. 210 2/8/04 and applying to off plan real estate sales to individual purchases. 

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

    1. The contractor can claim the payment of the sum awarded by the DAB or an interim relief by means of an interim measure, pending the outcome of the arbitration proceedings, pursuant to the article 669-quinquies of Italian Civil Procedure Code. 

      There is no case law in Italy concerning interim or partial awards requiring the payment of the sum awarded by a binding but non-final DAB decision. However, on the grounds of articles 669-quinquies and 818 of the Italian Civil Procedure Code, the contractor may request the payment of a sum awarded by the DAB or an interim relief by filing an interim measure, pending the outcome of the arbitration proceedings.

    Courts and arbitral tribunals

  42. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?

    1. There are no specialised courts that have the specific assignment of resolving construction and arbitration disputes but ordinary tribunal are usually divided in specialised divisions which may also include construction.

      Court proceedings related to disputes arising out of construction contracts in which public entities are involved are usually assigned to a specific division of tribunals and to the Arbitration Chamber for Public Works.

  43. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

    1. Courts, which have the power to hear disputes arising out of construction contracts, operate on three levels: first instance, appeal and Supreme Court.

      The review of arbitral awards rendered in Italy, as the enforcement of foreign arbitral awards, is within the jurisdiction of the Court of Appeal.

      Courts decisions are published.

      There is no doctrine of binding precedent, but courts tend to follow the precedent of higher courts. 

  44. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

    1. Italian judges have the power to raise certain ex officio legal issues. There are some specific provisions regulating the ex officio powers of the Italian judge (eg, an illicit contract might be declared void by a judge even if not riased by the parties).

      An Italian judge is neither permitted nor expected to give preliminary indications as to how it views the merits of the dispute.

      These principles also apply to arbitrators. 

  45. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

    1. Italian judges have no jurisdiction in relation to matters covered by an arbitration clause contained in the contract. However, the arbitration agreement does not prevent the possibility of requesting interim measures before state courts.

  46. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

    1. No. The application to a foreign court for interim or provisional relief does not prevent the possibility to arbitrate in Italy.

    Expert witnesses

  47. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

    1. Yes, it is possible for both the tribunal and the parties to appoint experts. While tribunal-appointed experts owe their duties to the tribunal, party-appointed experts owe their duties to the party that has appointed them.

    State entities

  48. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?

    1. Contracts for public works have distinctive features, such as the employer's right to terminate the contract if in the public interest and the distinction between contracts for services and contracts for supply.

      The 2016 Code of Public Construction Contracts and Concessions provides for specific procedures for project financing and new mechanisms such as innovation partnership.

    Settlement offers

  49. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

    1. There is no equivalent of the “sealed offer” mechanism in Italy. The refusal of a settlement offer that exceeds the amount awarded has no impact on the decision. There is no ‘without prejudice’ privilege for settlement offers (see question below).

    Privilege

  50. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

    1. There is no “without prejudice” privilege, however parties can stipulate a specific confidentiality clause/agreement providing, as the case may be, a penalty clause in case of breach.

  51. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

    1. In principle, advice of an in-house counsel is not considered privileged under Italian law (with some limited exception for a small number of former state-owned companies). However, in the limited cases in which the in-house counsel is also an attorney admitted to the Italian Bar, he or she cannot be forced to testify, pursuant to article 249 of the Italian Civil Procedure Code.

    Guarantees

  52. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

    1. Article 1937 of the Italian Civil Code requires that the will of the guarantor must be expressed, there is no particular form requirement for a guarantee in favour of a construction company (eg, written form). Thus, the requirements for a contract of guarantee to be effective are the same as those indicated under question 2. 

  53. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. Pursuant to article 1941 of the Italian Civil Code, the guarantor’s liability may not exceed the obligations of the underlying contract, irrespective of the guarantees’ wording. Should the guarantor’s liability exceed the underlying obligation, the guarantee will not be null and void but will only cover the amount corresponding to the underlying obligation (ie, partial nullity pursuant to 1419 Civil Code). 

      However, parties are free to limit the scope of the guarantor’s liability.  

  54. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. The guarantor will be released after the fulfilment of the underlying contract or after a certain time (two or six months depending on the circumstances) from the term established in the contract. The parties are also free to determine under which circumstances the guarantor will be released. 

    On-demand bonds

  55. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

    1. Absent a jurisdiction clause in the on-demand bond, Italian courts have jurisdiction when the main debtor has its registered seat in Italy. As a matter of substantive law, a call on an on-demand bond may be challenged if it is abusive or fraudulent.

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

    1. An on-demand bond is an independent obligation of the bank to pay when the contractor fails to perform the underlying contract. The employer does not have to prove a breach of the underlying contract. Courts and arbitral tribunals will look at the conditions provided by the on-demand bond itself.

    Further considerations

  57. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

    1. Beside the specific provisions contained in the code of public works (see above), Italian law provides also a decennial guarantee (see above).

Interested in contributing to this Know-how?

E-mail our Co-Publishing Manager


GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?


  2. Contract formation

  3. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?


  4. Choice of laws, seat, arbitrator and language

  5. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?


  6. Implied terms

  7. 4.

    How might terms be implied into construction contracts? What terms might be implied?


  8. Certifiers

  9. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?


  10. Competing causes of delay

  11. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?


  12. Disruption

  13. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?


  14. Acceleration

  15. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?


  16. Force majeure and hardship

  17. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?


  18. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?


  19. Impossibility

  20. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?


  23. Duty to warn

  24. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?


  25. Good faith

  26. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?


  27. Time bars

  28. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?


  29. Suspension

  30. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?


  31. Omissions and termination for convenience

  32. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?


  33. Termination

  34. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?


  35. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?


  39. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?


  42. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?


  43. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?


  44. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?


  45. Assessing damages and limitations and exclusions of liability

  46. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?


  47. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?


  48. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?


  49. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?


  50. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?


  51. Liens

  52. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?


  53. Subcontractors

  54. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?


  55. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?


  56. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?


  57. Third parties

  58. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?


  59. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?


  60. Limitation and prescription periods

  61. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?


  62. Other key laws

  63. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  64. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?


  67. Courts and arbitral tribunals

  68. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?


  69. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?


  70. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?


  71. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?


  72. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?


  73. Expert witnesses

  74. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?


  75. State entities

  76. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?


  77. Settlement offers

  78. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?


  79. Privilege

  80. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?


  81. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?


  82. Guarantees

  83. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?


  84. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?


  85. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?


  86. On-demand bonds

  87. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?


  89. Further considerations

  90. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?