The Law of Ukraine

On Property Liability for Violating Terms and Conditions of a Contractor's Agreement
(Contract) on the Fulfillment of Works Related to the Construction of Objects

Date of entry into force:
January 1, 2008

The Law:
- identifies the overall legal grounds for property liability for the failure to meet the deadlines for completing works related to the construction of objects and for making settlements for these works that were established by terms and conditions of a contractor’s agreement (contract); 
- aims at strengthening contractual discipline and responsibility for targeted and efficient spending of funds provided by the State Budget of Ukraine, the republican budget of the Autonomous Republic of Crimea, local budgets, funds of state-owned and municipal enterprises, institutions and organizations.

Provisions of the present Law shall apply to legal relations that arise between legal entities of all types of ownership (funds of state-owned and municipal enterprises, institutions or organizations according to a contractor’s agreement (contract)) who are customers, contractors and investors in the process of building, expanding, reconstructing, restoring, renovating, completely overhauling objects, buildings and of technically re-equipping enterprises that is carried out at the expense of funds provided by the State Budget of Ukraine or a local budget on one side and government bodies or local self-government bodies on the other side who provide financing for capital investment involving the above-mentioned risks.  

If the customer has failed to pay for completed works within 30 calendar days after the established deadline for payment expired, the contractor shall have the right to terminate the fulfillment of works, but not earlier than in ten calendar days after notifying the customer thereon. In the instance of delaying payments for more than 90 calendar days, the contractor shall have the right to terminate a contractor’s agreement (contract) and demand payment of a forfeit (penalty tax) and compensation of damages inflicted by the termination of a contractor’s agreement (contract) in the part that is not covered by the forfeit (penalty tax).

In case of the failure to fulfill terms and conditions of a contractor’s agreement (contract), the contractor or the customer shall deliver the relevant information to a specially authorized central body of executive power in the area of construction, architecture and housing policy, as well as the relevant structural departments of local state administrations that are accountable thereto and subordinated thereto. Property liability for violating terms and conditions of a contractor’s agreement (contract) shall be applied to contractors and customers that have allowed the failure to fulfill or improper fulfillment of contractual terms and conditions. Upon demand of the injured party, property liability shall envisage collection of a forfeit (penalty tax), as well as compensation of in the part that is not covered by the forfeit (penalty tax) at the expense of the party at fault. Parties to a contractor’s agreement (contract) shall have an obligation to collect a forfeit (penalty tax) according to the established procedure and to demand a compensation for damages for violating contractual obligations envisaged by a contractor’s agreement (contract). In the instance of the failure to meet this requirement, the amount of a forfeit (penalty tax) that was not collected from the party at fault for violating terms and conditions of a contractor’s agreement (contract) according to the established procedure shall be collected by the decision of an arbitration tribunal in favor of the State Budget of Ukraine both from the Party that has not made these claims and from the Party that has failed to fulfill contractual obligations. The procedure for collecting these amounts shall be established by the Cabinet of Ministers of Ukraine. A Party shall be exempt from property liability if it proves that contractual obligations were violated not through its fault.

Cases related to disputes between the customer and the contractor that deal with the payment of a forfeit (penalty tax) for violating deadlines for completing works (putting objects into commission) and for revising these deadlines shall be resolved by an arbitration tribunal.

The size of a forfeit (penalty tax) shall be the following:
- for violating deadlines for completing works (putting objects into commission) through the contractor’s fault – the amount of the contractual price for works determined with due consideration for the official level of inflation, that proceeds from the penalty rate of the National Bank of Ukraine that was effective during the period for which the forfeit (penalty tax) is paid, multiplied by 1.5;
- for violating deadlines for transferring advance payments and payments for works fulfilled (services provided) by the contractor through the customer’s fault – the amount of the overdue payment with due consideration for the official level of inflation, that proceeds from the penalty rate of the National Bank of Ukraine that was effective during the period for which the forfeit (penalty tax) is paid, multiplied by 1.5.

The bodies responsible for overseeing how the Parties fulfill and meet contractual obligations and requirements shall be:
- a specially authorized central body of executive power in the area of construction, architecture and housing policy;
- the relevant structural departments of local state administrations.
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