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Print articleNew General Terms and Conditions for the Purchase of Goods for Professional Construction Businesses, ABM 07
October, 2008 - Senior Associate Tom Nordström
For a long time, there have been negotiated general terms and conditions for the purchase of goods for construction businesses. The latest version is called ABM 07.
Before I explain the changes these entail in relation to the previously provisions, ABM 92, I will give a summary description of the development, from the mid-1970’s, which has led to the ABM of today.
In the 1970’s, the document was called ABM 75 and was, first and foremost, intended for purchases of material for constructions which were regulated by the then applicable construction provisions AB 72.
In the 1970’s, the problem with “sick” buildings, as they are called, became evident. These problems were often caused by a liquid filler containing casein, which generated mould and which was used, e.g. to level floors. These problems became very costly for the builders and contractors, which were forced to remove the filler and sanitize the buildings from mould. The majority of these costs were not possible to transfer to the supplier of the material when the material was purchased under agreements to which ABM 75 applied, since the seller’s responsibility was to deliver new and flawless material and, in addition to this, to compensate losses up to an amount corresponding to 10 % of the consideration paid for the goods.
In conjunction with AB 92 being negotiated, negotiations were also conducted regarding the new ABM. In these negotiations, the purchasers demanded that the material suppliers should be fully responsible for faults in the products sold. The negotiations were a success for the purchasers and resulted in ABM 92, which, regarding liability, related to AB 92. In the same way AB 92 meant a shift in the trend regarding an increased responsibility for the contractors, ABM 92 constituted a shift in the trend in the way that the material suppliers’ liability for faults was substantially extended. Under ABM 75, the suppliers were, to a great extent, freed from all liability. In ABM 92 however, the suppliers assumed a very extensive liability. First and foremost, the suppliers assumed an unlimited liability for the costs of locating the problem as well as for access and restoration costs when remedying the fault. These costs can become very great, especially when it comes to faulty material which is built in. In addition to this, the supplier should, as previously, at its own cost, deliver new flawless material and be liable for losses up to an amount of 15 % of the purchase sum; or, if the seller had a liability insurance, the higher amount which is covered by the insurance.
Thus, the shift in the trend occurred with ABM 92. In ABM 07 , the development towards a greater liability for the supplier has continued, in that the provisions have been adjusted to the revised provisions for Building, Erection and Installation constructions AB 04 and the provisions for turn-key constructions ABT 06, which entail a greater liability for the contractors than AB 92 and ABT 94.
The major differences between ABM 92 and ABM 07 concern the period during which the supplier is responsible for faults and the provision on dispute resolutions.
Under ABM 92, the seller was responsible for faults which arose within a warranty period of two years from receipt, or, if the goods were intended for construction, two years from final inspection. If the fault was material and was caused by negligence, the seller was responsible for ten years from receipt or final inspection.
Under ABM 07, the seller is responsible for a warranty period of five year from receipt. For goods intended for construction, the warranty period is six years from the final inspection. In addition, as in ABM 92, the seller is responsible for material faults which are caused by negligence and which become evident within ten years from the receipt or eleven years from the final inspection.
However, in ABM 07 a limitation rule has been introduced regarding the liability period which was missing in ABM 92. Under ABM 92 it was sufficient that the fault became evident during the warranty period and the liability period, respectively, in order for the contractor to be held accountable. In ABM 07, a rule has been introduced which states that the fault also must be reported within these periods in order for the seller to be held accountable.
In the AB provisions as well as in the ABM provisions, it has since the beginning been prescribed that disputes shall not be resolved in a public court but through arbitration unless the dispute concerned a minor amount. Hence, under ABM 75, disputes concerning amounts higher than SEK 25 000 should be resolved through arbitration and under AB 72 all disputes should be resolved through arbitration unless the dispute concerned an undisputed matured claim. In ABM 92 and AB 92 the limit was established at four and ten basic amounts, respectively, (currently SEK 160 000 and SEK 400 000, respectively)
In this respect, a radical change has been made in AB 04, ABT 06 and ABM 07. The limit is now established at 150 basic amounts excluding VAT in AB 04, ABT 06 and ABM 07. Thus, only disputes which exceed approx. SEK 6 million excluding VAT will henceforth be decided by arbitration, unless the parties agree otherwise. This means that the majority of all construction disputes will be decided in public courts in the future.
This is an almost revolutionary change. It is not known to me why it was made. But one reason can surely be that arbitration procedures have begun to be regarded as being too expensive. The changes will however result in public courts in the future having to handle many relatively large and time consuming cases which they have avoided to date. The question is whether the courts have sufficient resources to deal with these cases. One can at least expect that the time from bringing an action to a resolution through a legally valid decision will be considerably longer than before.
Before I explain the changes these entail in relation to the previously provisions, ABM 92, I will give a summary description of the development, from the mid-1970’s, which has led to the ABM of today.
In the 1970’s, the document was called ABM 75 and was, first and foremost, intended for purchases of material for constructions which were regulated by the then applicable construction provisions AB 72.
In the 1970’s, the problem with “sick” buildings, as they are called, became evident. These problems were often caused by a liquid filler containing casein, which generated mould and which was used, e.g. to level floors. These problems became very costly for the builders and contractors, which were forced to remove the filler and sanitize the buildings from mould. The majority of these costs were not possible to transfer to the supplier of the material when the material was purchased under agreements to which ABM 75 applied, since the seller’s responsibility was to deliver new and flawless material and, in addition to this, to compensate losses up to an amount corresponding to 10 % of the consideration paid for the goods.
In conjunction with AB 92 being negotiated, negotiations were also conducted regarding the new ABM. In these negotiations, the purchasers demanded that the material suppliers should be fully responsible for faults in the products sold. The negotiations were a success for the purchasers and resulted in ABM 92, which, regarding liability, related to AB 92. In the same way AB 92 meant a shift in the trend regarding an increased responsibility for the contractors, ABM 92 constituted a shift in the trend in the way that the material suppliers’ liability for faults was substantially extended. Under ABM 75, the suppliers were, to a great extent, freed from all liability. In ABM 92 however, the suppliers assumed a very extensive liability. First and foremost, the suppliers assumed an unlimited liability for the costs of locating the problem as well as for access and restoration costs when remedying the fault. These costs can become very great, especially when it comes to faulty material which is built in. In addition to this, the supplier should, as previously, at its own cost, deliver new flawless material and be liable for losses up to an amount of 15 % of the purchase sum; or, if the seller had a liability insurance, the higher amount which is covered by the insurance.
Thus, the shift in the trend occurred with ABM 92. In ABM 07 , the development towards a greater liability for the supplier has continued, in that the provisions have been adjusted to the revised provisions for Building, Erection and Installation constructions AB 04 and the provisions for turn-key constructions ABT 06, which entail a greater liability for the contractors than AB 92 and ABT 94.
The major differences between ABM 92 and ABM 07 concern the period during which the supplier is responsible for faults and the provision on dispute resolutions.
Under ABM 92, the seller was responsible for faults which arose within a warranty period of two years from receipt, or, if the goods were intended for construction, two years from final inspection. If the fault was material and was caused by negligence, the seller was responsible for ten years from receipt or final inspection.
Under ABM 07, the seller is responsible for a warranty period of five year from receipt. For goods intended for construction, the warranty period is six years from the final inspection. In addition, as in ABM 92, the seller is responsible for material faults which are caused by negligence and which become evident within ten years from the receipt or eleven years from the final inspection.
However, in ABM 07 a limitation rule has been introduced regarding the liability period which was missing in ABM 92. Under ABM 92 it was sufficient that the fault became evident during the warranty period and the liability period, respectively, in order for the contractor to be held accountable. In ABM 07, a rule has been introduced which states that the fault also must be reported within these periods in order for the seller to be held accountable.
In the AB provisions as well as in the ABM provisions, it has since the beginning been prescribed that disputes shall not be resolved in a public court but through arbitration unless the dispute concerned a minor amount. Hence, under ABM 75, disputes concerning amounts higher than SEK 25 000 should be resolved through arbitration and under AB 72 all disputes should be resolved through arbitration unless the dispute concerned an undisputed matured claim. In ABM 92 and AB 92 the limit was established at four and ten basic amounts, respectively, (currently SEK 160 000 and SEK 400 000, respectively)
In this respect, a radical change has been made in AB 04, ABT 06 and ABM 07. The limit is now established at 150 basic amounts excluding VAT in AB 04, ABT 06 and ABM 07. Thus, only disputes which exceed approx. SEK 6 million excluding VAT will henceforth be decided by arbitration, unless the parties agree otherwise. This means that the majority of all construction disputes will be decided in public courts in the future.
This is an almost revolutionary change. It is not known to me why it was made. But one reason can surely be that arbitration procedures have begun to be regarded as being too expensive. The changes will however result in public courts in the future having to handle many relatively large and time consuming cases which they have avoided to date. The question is whether the courts have sufficient resources to deal with these cases. One can at least expect that the time from bringing an action to a resolution through a legally valid decision will be considerably longer than before.
