Who is liable for damages and defects?
In the German economy, an increasing number of companies are opting for the use of subcontractors from abroad. Various sectors are affected by this, especially construction,logistics, IT,and production, Production which are classic sectors where subcontractors from abroad are used.
Many German companies save costs by using foreign subcontractors. The reason for this is that labour and operating costs are significantly lower in many countries than in Germany.
Another reason is the ongoing shortage of skilled labor in Germany, particularly in the IT and engineering sectors.
International specialists often bring valuable experience and specialised know-how that is not available on the domestic market. Many foreign subcontractors have also specialised in certain services or technologies. This allows a German company to work more efficiently and implement innovative solutions more quickly. By using foreign subcontractors, a German company can react much more flexibly. Labour can be hired without having to make long-term commitments. This is a great advantage, especially in sectors that are seasonal or order-dependent.
By using foreign subcontractors, German companies can tap into new markets. Especially when they operate internationally, the expertise of foreign subcontractors can be valuable in facilitating market entry and minimizing risks.
However, working with subcontractors across national borders raises numerous legal questions, particularly with regard to liability in the event of damage or defects. Who is responsible if the service provided does not meet the contractual requirements or if damage is caused? What legal framework conditions need to be observed?
Contractual provisions as the basis for liability
When companies work together, the contract is the first basis for liability between the two parties. It is important that clear and unambiguous contractual provisions are made. This avoids disputes later on. It is important that the service description is precise. It must be specified exactly what work the subcontractor is to perform. Another component of the contract is liability. This clearly defines the cases in which the subcontractor must pay for damage or defects. The scope of liability is also defined.
Another important point is that the place of jurisdiction is contractually regulated. This is particularly important in international business relationships. It is possible that the question of liability may be interpreted differently due to different national legal systems. It must therefore be clearly defined which national law applies and which court has jurisdiction in the event of disputes.
The insurance obligation is also an important part of the contractual arrangement between the two parties. The German company must ensure that the subcontractor has sufficient public liability insurance. This insurance will then cover financial losses in the event of damage and minimise the risk for the client.
National and international legal regulations
In addition to contractual agreements, liability for damage and defects is also governed by legal requirements. Both national regulations and international laws play a role here.
German law: BGB and VOB/B
In Germany, liability for defects and damage is generally governed by the German Civil Code (BGB) and in certain sectors by the German Construction Contract Procedures (VOB/B).
German law states that the contractor is obliged to deliver a defect-free service. If a defect does occur, the employer has the right to have the contractor rectify the defect. In the event that rectification is not possible or the contractor does not carry it out within the agreed period, the client can claim compensation. In the construction industry, the VOB/B also applies, which provides for special warranty periods and defines the legal framework for claims for defects.
The direct liability of the client is also an important point in German law. There are various cases in which the client is liable for errors and damage caused by its subcontractor. Such a case exists, for example, if the client has not carried out its control obligations sufficiently or if the subcontractor is only considered a vicarious agent.
International legal situation
In the event that a foreign subcontractor is commissioned, the legal situation in the respective country applies. Within the EU, it is relatively simple because there are regulations on cross-border co-operation. The Rome I Regulation is particularly worth mentioning here. It stipulates that, in principle, the agreed law stated in the contract applies. In the absence of such a regulation, the law of the country in which the subcontractor has its registered office applies.
If the subcontractors are from third world countries, legal enforcement can be significantly more difficult. It is especially important that all contractual agreements are secured in detail. It is also advisable to consider additional insurance for liability cases. This protects both parties, as enforcing claims for damages against subcontractors from third countries is much more complicated. The reason for this is that there are no bilateral agreements with Germany.
Liability for damage: who is responsible?
The question of liability is particularly difficult if damage is caused by the activities of a foreign subcontractor. The following cases may arise:
Direct liability of the subcontractor
It is important that the contract clearly specifies the provisions regarding the subcontractor's liability. If damage can be clearly attributed to the subcontractor, they are responsible for the damage they caused. They are also fully responsible for ensuring that their work complies with contractual and legal requirements.
Liability of the client
There are cases in which the client can be held liable themselves. Particularly if they have failed to fulfill their duty of supervision, they can be held responsible. They must thoroughly check the subcontractor in advance. The client is responsible for ensuring that the legal provisions of the Posted Workers Act or the Minimum Wage Act are complied with. Additionally, the client must ensure that they do not accept any defects that they could have recognized themselves.
Joint liability (joint and several liability)
In some cases, both the client and the foreign subcontractor may be jointly liable for damages or defects. In such a case, the injured party then has the right to choose from whom to claim compensation. This can be the case in particular with complex projects involving several parties.
How can you protect yourself against liability risks?
The first step in safeguarding is a detailed contract. It defines exactly which services the subcontractor must provide. It also clearly states what liability the subcontractor will assume in the event of damage. Insurance is also an important factor. It is best to stipulate in the contract that the subcontractor must take out public liability insurance. Confirmation from the insurance company, which the company asks to see in advance, is helpful here.
It is also important that the company carries out regular checks on the services provided. This can be continuous monitoring or frequent quality checks. Audits can also be carried out to ensure that the subcontractor is carrying out its work properly. These permanent checks allow defects to be recognised at an early stage. This puts both parties involved in a position where these defects can be rectified at an early stage and no major damage occurs.
In addition, the German company must ensure that the subcontractor is clearly instructed in the work. Employee training can also help to improve the quality of the work.
Clear communication structures and precise documentation of all work steps help to avoid disputes in the event of liability.
