ESG requirements in building law: avoiding conflicts through multi-party agreements

Building specifications and contractual bases for new construction projects are full of ESG requirements. The construction of new buildings must comply with a growing number of regulations on energy saving (e.g., Energy Saving Ordinance, Building Energy Act), the use of sustainable building materials (e.g., recycled building materials, wood from sustainable forestry), the use of energy-efficient technologies (optimized insulation, building automation, renewable energies) as well as accessibility and inclusion.

In addition, there are regulations for the implementation of the project itself. Examples include occupational health and safety laws and construction site regulations to ensure the safety of employees, construction law requirements and regulatory measures to combat corruption and bribery, particularly when awarding construction contracts.

Differences in the interpretation of regulations can sometimes threaten the existence of projects

In particular, compliance with regulations on the energy efficiency of a building poses major challenges for the planners and companies involved. If, in addition to that, the general contractors and subcontractors used are domiciled directly abroad or operate as German branches of foreign construction companies – which is also becoming increasingly common – the risks are numerous.

Differing views on the type and quality of workmanship can quickly lead to bitter disputes on construction sites. Experience shows that this can even jeopardize the existence of projects within a very short time. Law firms with a strong international network can assist clients and project developers. Nevertheless, such disputes always have a negative impact on the schedule and cost objectives of the project in question.

Conflicts can be prevented with clear contracts and planning specifications

What helps to prevent such conflicts are clear contractual and planning specifications and therefore close consultation between the parties at the start of the project.

The legal basis for such a close consultation can be a multi-party contract in accordance with the principles of integrated project execution (IPA), which is becoming increasingly common in practice. The client does not conclude individual contracts with the planners and contractors. Instead, a joint contract is concluded between all parties involved, who commit to the same project objectives and contribute their respective special skills into the planning at an early stage.

A so-called “validation phase” is usually planned at the start of the project, in which the client’s project objectives are reviewed and the so-called base target costs are established. If it becomes apparent that the project is unlikely to be realized in the planned form and within the planned budget, the client can refrain from implementing the project. 

Multi-party agreements exclude disputes and enable incentives

A correspondingly close agreement through the conclusion of a multi-party contract prevents the parties involved in the construction entering into the project with different expectations and ensures that compliance with certain energy efficiency, sustainability or supply chain requirements is understood and mutually monitored by all parties right from the start.

This is not the only advantage of integrated project development: such contracts are also attractive because, for example, bonuses can be agreed for all parties involved if certain milestones of the construction project are reached on time.

We assume that the current challenges in connection with the ESG-compliant design of construction projects will continue in 2025 (and with a new German government). With our strong international network, we also advise you on cross-border construction projects. We help you to avoid conflicts by drafting appropriate multi-party agreements and to optimize your project process through incentive systems.