Passing of risk
(Правовое руководство по составлению строительных контрактов)
Loss or damage may be caused to equipment and materials to be incorporated in the works and to the works before or after completion, as well as to tools and construction machinery to be used by the contractor for effecting the construction. This chapter deals with loss or damage which may be caused by accidental events or by the acts of third persons for whom neither party is responsible, and the issue of allocating the risk of such loss or damage between the parties (paragraphs 1 to 4).
In determining how the risk of loss or damage is to be allocated between the parties, several factors need to be considered and balanced (paragraph 5). The parties may sometimes wish to exclude certain specified events from the risks to be borne by the contractor, and to allocate the risk of loss or damage from that event to the purchaser (paragraph 6).
Mandatory rules in many legal systems provide that, after equipment and materials are incorporated in the works, they lose their separate identity, and the party bearing the risk in respect of the works will also bear the risk in respect of the incorporated equipment and materials. The time at which equipment and materials are considered to be incorporated in the works will be determined by criteria specified in the applicable law (paragraphs 7 and 8).
The parties may wish to determine the allocation of risk in respect of equipment and materials supplied by the contractor, and the time at which the risk is to pass from one party to the other. This may depend, in particular, on which party is to be in physical possession of the equipment and materials and the need to avoid a multiple passing of risk (paragraphs 9 to 15).
Equipment which is supplied by the contractor is sometimes not intended to be incorporated in the works. If they are able to do so under the applicable legal rules, the parties may wish to allocate the risk in respect of such equipment on the basis of which party is to be in physical possession of the equipment prior to the take-over of the works (paragraphs 16 and 17).
In respect of equipment and materials supplied by the purchaser for incorporation in the works, the parties may wish to determine the allocation of risk on the basis of factors similar to those which would be relevant to an allocation of risk in respect of equipment and materials supplied by the contractor (paragraphs 18 and 19).
In respect of the works during construction and the completed works, where only one contractor is engaged to construct the entire works it is advisable to provide that the contractor is to bear the risk until take-over or acceptance by the purchaser (paragraphs 20 and 21). Where several contractors participate in the construction in succession, the contract may provide that the risk is to pass to each contractor at the time the uncompleted works is taken over by him, and pass to the purchaser at the time the works is taken over by the purchaser (paragraph 22).
Where the contractor bears the risk of loss or damage, the contract may require him to cure with all possible speed and at his own expense any loss or damage which occurs. Where the purchaser bears the risk in respect of equipment and materials supplied by the contractor, the contract may obligate him to pay the entire price for equipment and materials which are lost or damaged (paragraph 23).
It is advisable for the contractor to bear the risk in respect of the contractor's tools and construction machinery brought to the site for effecting the construction (paragraph 30).