The issue of determining the subject matter of construction contract

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THE ISSUE OF DETERMINING THE SUBJECT MATTER OF CONSTRUCTION CONTRACT

Nedoshovenko A.O.

postgraduate of law faculty Taras Shevchenko National University of Kyiv

Summary: The article provides research of debatable issues regarding definition of construction contract's subject matter. Research includes analysis of civil and commercial legislative provisions, which regulate the procedure for the conclusion of construction contract. Disclosure of main theoretical researches in regard to subject matter of construction contract is also covered by the research.

The main emphasis is made on advantages and drawbacks of different approaches to defining the subject matter of construction contract. Particular attention is paid to comparison of subject matter and object of construction contract.

Key words: conclusion of construction contract, subject matter and object of construction contract, concepts for definition of construction contract's subject matter

Problem statement. There is no consensus in legal doctrine regarding definition of construction contract's subject matter. Disunity among scientists concerning this issue's solution is due to complexity of contractual relations, that arise in regard to constructional works' performance. On the one hand, accomplishment of material result, in the form of new construction object or any other material result, that can manifest itself not only as a new object, but also as a reconstruction or qualitative change of existing objects (when performing installation, start-up and adjustment and overhaul works) - is the main purpose for conclusion and performance of construction contract.

On the other hand, regulative influence of construction contract is aimed, foremost, at regulation of performance of constructional works, that manifests itself in the necessity for defining in such contract a type of constructional works, nature of construction (e.g. new construction, reconstruction, restoration etc.), composition and scope of works, that are to be performed by contractor.

Analysis of latest researches and academic papers. Theoretical and practical aspects of definition of construction contract's subject matter were studied by E.L. Abramtsova, M.S. Bilenko, A.B. Hryniak, A.A. Karavaikin, N. Kuchakovska, M.D. Plenyuk, V.P. Yan- ishen and others. Despite significant amount of scientific studies, dedicated to defining subject matter of civil contract as a whole, and theoretical issues for defining subject matter of construction contract in particular, the issue remains unresolved.

Emphasizing previously unresolved parts of the main issue. In order to address the issue of defining the subject matter of construction contract, the main theories and approaches which are devoted to this issue must be analyzed. Revealing all advantages and drawbacks of all major approaches for determining the subject matter of construction contract will help to make a choice of the most proper concept for definition of construction contract's subject matter.

The purpose of this article is the analysis of legal acts which regulate conclusion of construction contract, main scientific concepts for defining subject matter of construction contract and statement of author's opinion regarding advantages and disadvantages of these concepts.

Recitation of main results. According to para. 14 of General terms for the conclusion and execution of contracts in capital construction, approved by Order of Cabinet of Ministers of Ukraine August 1^th 2005 №668 (hereinafter - General terms), the subject matter of construction contract are works, related to construction of an object, obligation to perform which is laid upon contractor. However, para. 15 of General terms contemplates, that parties are to determine the name of construction object and its location, key parameters (power, area, volume), composition and scope of works, contemplated by project documentation and subject to be performed by contractor, other indicators, that characterize subject of the contract [1].

Civil Code of Ukraine, from 16.01.2003 (hereinafter - CC) does not contain separate articles, dedicated to subject matter of the construction contract. However, part 2 of Article 875 defines the list of works, in regard to performance of which a construction contract may be concluded (carrying out new construction, overhaul works etc.) [2].

Therefore, Ukrainian legislation defines the subject matter of construction contract in different ways, as in some norms the subject matter of construction contract is defined as the result of performed works, whereas in other norms, constructional works (their performance) are the subject matter of such contract.

This is why in Exemplary construction contract, approved by Order of Ministry of construction, architecture and utilities, adopted on October 21^st № 3, the subject matter of construction contract is perceived in terms of nature of constructional works, that the contractor is obliged to perform, and also in terms of determining key parameters of results of these works (objects of construction) [3].

As stated by M.S. Bilenko, it is possible to highlight three concepts regarding the issue of subject matter of construction contract. First and most common one is a concept of unitary subject matter of construction contract. According to it, only one of three following options may be deemed as subject matter of construction contract: 1) completed and ready for commissioning object of construction; 2) subject matter consists of two elements - performance of works and its results; 3) contractor's performance of building a construction object. Second concept is based upon assumption, that there are two subject matters of construction contract, that exist simultaneously: material, that is the result of works, and legal - parties' performance under the construction contract. Third concept indicates the existence of alternative subject matters of construction contract: either finished construction object or complex of general construction or special works [4, p. 56].

Scientist concludes, that in a construction contract work and its result are usually separated in time (a work is performed first, and then its result arises), however they are closes interconnected and comprise the uniform subject matter of construction contract. According to M.S. Bilenko, opinion of those scientists, who note, that performance of works is also a component of construction contract's subject matter, should be agreed with, as the client is interested not only in transferring to him the result of works upon construction's end, but also in time frames and quality of performed work [4, p. 57].

It should be noted, that aforementioned concepts for determining subject matter of construction contract do not take into consideration all theoretical issues, concerning definition of the subject matter of construction contract. These concepts do not take into account the correlation between subject and object of construction contract, which is fundamentally important for determining content and scope of construction contract's subject matter as notion and essential term of any other contract.

Regarding client's interest in time periods, it should be noted, that execution times are a separate clause of construction contract, and do not relate to its subject matter. Client's interest in quality of performed work also prevents solution of determining construction contract's subject matter issue, because of the fact, that construction contract is aimed at receiving a materialized result, it is hard to state, what exactly the client is interested in: quality of work's performance or quality of its results?

Analysis of civil legislation's provisions does not provide a clear answer to this question. Some norms state about work performance quality (subpara. 3, para 28, subpara. 5 para. 73 of General terms), while others state about quality of completed works or their result (p. 2 Article 857 of CC, para. 103 of General terms).

Certainly, quality of constructional works' performance and quality of their results are interrelated (quality of results depends on quality of performing constructional works). However, the client is interested, foremost, in proper quality of results of construction works, not the process of their performance. That is why civil law provisions, above all, are aimed at facilitation for accomplishment of proper quality of constructional works.

Legislation provides for possibility of a contractor to eliminate shortcomings, free of charge, within a reasonable time frame (para. 1 part 1 Article 858 of CC), a right of contractor to perform work anew, free of charge, including damages, awarded to a client, that suffered due to delay in performance, instead of elimination of shortcomings of work, for which he is responsible (part 2 Article 858 of CC); a client to be entitled to elimination of work's shortcomings by his own efforts or attendance of third parties. Client's expanses, associated with elimination of shortcomings, shall be compensated by a contractor (para. 93 of General Terms)

According to M. Plenyuk, subject matter of construction contract is a finished result of construction works, meaning a completed construction object or other finished construction works, which are custom- made according to design estimation paperwork.

It is logical to define construction contract's subject matter through works' results, considering that the client's interest is oriented on receiving the result of works, but such definition has its own drawbacks. In particular, it is noted in legal literature, that contract's subject matter is one of the main criteria to separate one contract from others [5, p. 61; 6, p. 62; 7, p. 4].

In legal literature, however, there is a suggestion, that definition of contract's subject matter through an object (benefit) does not permit to identify a type and peculiarities of a contract, because an object (benefit) can a subject matter to many contracts [6, p. 62].

It's worth agreeing with this opinion, as definition of construction contract's subject matter through the result of construction works will lead to identification of this contract's subject matter with other types of contracts. In case a construction object will be construction contract's subject matter (a house or construction), the subject matter of this contract will coincide with many other contracts' subject matters, such as real-estate purchase agreement, home rental agreement or of any other permanent structures, because construction object (house, construction and other objects) will also be recognized as a subject matter of these agreements.

Differentiation of types of contracts is carried out according to what actions the parties have to perform for the contract to be performed. Construction contract causes an obligation of performing construction works to arise (new object construction, reconstruction, installation etc.) Actions, performed by parties for the contract to be performed, make it possible to identify this contract as a separate type and to conduct differentiation of this contractual design from other types of contracts, that can stipulate transfer of ownership of construction object, provision of such object for use.

According to S. Shimon correct statement, relationship of obligation can include a number of rights and obligations, fulfillment of which leads to a parties' desired result, however all of them cannot be a subject matter of a contract, as, firstly, they can relate different clauses; secondly, they are consequences of contract's conclusion, which is basis for their origin. Main action or actions, which are performed by parties and ensure accomplishment of contract's goal, may be considered a subject matter of a contract.

Construction works' result is the goal (causa) for conclusion and fulfillment of construction contract.

However, construction contract as regulator of social relationships, is aimed at legal regulation of construction works' performance, thus potential counterparties have to agree on types, composition and scope of works that are to be performed and essential requirements for their performance.

Considerable part of construction contract's clauses is aimed at creating proper conditions for performing construction works (conditions of ensuring conducting of works with project documentation, resources and services, management of works, control over performance of works etc.) Contractor's performance of construction works plays a major role in contractual relationships, because receiving of the result depends on performance of construction works.

Thereby it is quite hard to isolate performance of construction works as construction contract's separate clause outside of its subject matter, as the performance of construction works itself discloses essence of construction contract and, along with transfer and payment for results of construction works, is being the main action, as performance of construction works itself causes an accomplishment of construction contract's main goal (causa)

Other actions, that are being performed by the parties in order for their rights and obligations, determined in a contract, to be performed (e.g. client's right for conducting technical control and supervision over the progress of works, contractor's obligation to coordinate performance of subcontractors on the construction site etc.) are being derivative and aimed only at creating proper conditions for performance of works, and therefore make up other conditions.

Such actions also play a major role in accomplishing proper result, but aimed not at achievement of contract's main goal, but rather execution of intermediate tasks. Contractor's obligation to inform the client in accordance with the established procedure about progress of performing his obligations under the construction contract, circumstances hindering his performance and measures, necessary for their elimination, create essential conditions for performance of construction works, however performance of this obligation, in itself, does not allow to accomplish a result, for which the contract was concluded.

Taking into the account an increasing value of civil law agreement in civil turnover, we cannot consider a contract's subject matter only as a thing (intangible benefit), that a contract was concluded for. Contract's subject matter are parties' actions, because nowadays a contract is considered to be a regulator of social relations (in certain studies, even as the source of law). Thus, a contract, just as any other regulator of social relations, is aimed at regulating subjects' actions, and not tangible objects (intangible benefits), which, though being a product of human activity, do not, however belong to phenomena of objective reality.

Besides, definition of construction contract's subject matter through actions of parties regarding performance of construction works and payment for them, corresponds with the purpose of a contract as regulator of relationships of obligation, that reflects dynamic of civil relationships, unlike property relationships, which are inherently static.

Thereby, we should agree with those scientists, who believe, that performance of construction works and payment for them are construction contract's subject matter, and not materialized result of these works.

Considering the fact, that order of transferring the result of performed works involves the necessity for committing many actions related to organization and arrangement of transmission and acceptance completed works (drawing up and signing up an act, conducting preliminary test (in case it is necessary to conduct such test), client's verification of the result for no shortcomings), it should be noted, that transfer and acceptance of works (construction objects) requires detailed regulation by parties.

Therefore, it should be noted, that the order of transfer and acceptance of completed works (construction object) is a separate clause of construction contract, though there is a direct connection with construction contract's subject matter. Isolation of the order of performed works' (construction object's) transfer and acceptance as a separate clause of construction contract is connected with necessity for detailed regulation of this order by parties to the contract

Regarding object of construction contract, it is hard to agree with those scientists, who believe, that contractor's positive actions, aimed at his completion of certain work, as per client's order, has to be an object of these types of contracts [8, p. 149].

Taking into account the content of the notion of object, according to T.V. Bodnar, it is necessary to distinguish notions of contract's subject matter and object, because an object of the contract (or object of contractual obligation) should be understood as property (goods, money etc.), to be provided by parties [9, p. 155].

This approach is based on the fact, that an object is a thing (intangible benefit), for acquiring which a contract has been concluded. Due to the definition of an object as a notion and its role in theory of law, contract's object is defined through the result of performed works (construction object).

Dictionary of Ukrainian language defines a notion of object as a phenomenon, subject matter or individual, at which certain activity and attention is aimed at, as well as a certain unit (construction, enterprise, area etc.) of economic or defensive importance. In theory of law, the notion of object of legal relationships means tangible or intangible benefits, for acquiring, transfer and usage of which rights and obligations of legal relationships participants arise [11, p 50].

Understanding of construction object or other materialized result of construction works as an object of construction contract corresponds with semiotic meaning of "object's" notion, and also Articles 177 and 178 of CC, which determine types and general terms for turnover of objects of civil rights. In particular, according to p.1 Article 177 of CC, objects of civil rights are things, including money and securities, other property, proprietary rights, results of works (italics ours - A.N.) etc.

Though disposition of p. 1 of Article 177 of CC states about objects of civil rights, and not a contract or relationship of obligation, it should be taken into account, that these categories are interrelated, since a contract is defined as an agreement between two parties on the establishment of civil rights and obligations. At the same time, majority of civil rights and obligation, which are determined in construction contract and are the essence of obligation for performing construction works, are directly or indirectly aimed at accomplishing certain result of these works (construction object or other materialized result).

Provisions, mentioned above, are highlighted as a separate section of CC's first book "General provisions" and thus have to be considered during conceptual framework formation of proprietary law and law of obligations.

Thereby, construction contract's object should be understood as the result of finished works (construction object). If p.2 of Article 875 of CC and para. 14 of General terms indicate construction contract's subject matter (performance of construction works), then requirements of para. 15 of General terms regarding the necessity for determining in a contract construction object's name and location, main parameters (capacity, area, volume) relate to a construction contract's object, in spite of mentioning "other indicators that characterize the subject of the contract"

Conclusions. Current legislation does not provide a clear answer to what should be understood as construction contract's subject matter. Scientific concepts for definition of construction contract's subject matter are mainly focused just on defining of structural components of this type of contract and do not consider the interrelation between notions of "subject matter" and "object" of construction contract.

Client's interest in proper quality, terms, or any other requirements for duly performed construction works, cannot be a successful criterion for definition of construction contract's subject matter, as such requirements can be essential for other clauses of construction contract or relate to not so much the performance of works, but their result.

Those scientists, who state, that definition of any contract's subject matter through a thing (benefit) will significantly complicate classification and distinguishing of types of contracts, should be agreed with, as concerning certain thing (benefit) several legal transactions may be performed. Highlighting of separate types of contracts is made taking into consideration the essence of actions, that are to be performed by parties of concluded contract.

Subject matter of construction contract has to be understood as parties' actions for performance of construction works and payment for them. Other actions of parties are derivative and aimed only at creating proper conditions for performance of works, and therefore make up other conditions. Result of construction works (construction object) has to be understood as subject matter of construction contract.

construction contract civil commercial legislative

References:

2. Civil Code of Ukraine: Act of Ukraine adopted on 16.01.2003 № 435-IV with changes and additions. Bulletin of Verkhovna Rada. 2003. №40-44. Article 356

3. On approval of Exemplary construction contract in capital construction: Order of Ministry of construction, architecture and utilities, adopted on October 21^st № 3.

4. Bilenko M.S. Subject matter of construction contract. Legal Ukraine. 2013. № 10. P. 53-58

5. Plenyuk M.D. Result of works as essential term of construction contract. Legal Ukraine. 2013. № 10 - P. 59-63.

6. Shimon S.I. Civil legal relationship's and contract's object and subject matter: notes of scientific discussion. Legal Ukraine. 2011. - № 4. P. 58-64

7. Yanishen V.P. On issue of distinguishing of construction contract and services agreement. Theory and practice of jurisprudence. 2013. Vol. 2, № 4. 13 p. URL: http ://tlaw.nlu. edu.ua/article/view-File/62835/58304

8. Grinyak A.B. Contractual obligations for performance of works in Ukraine's civil law. dissertation. doctor of philosophy: 12.00.03; Research Institute of Private Law and Entrepreneurship of the National Academy of Legal Sciences of Ukraine. K., 2013. 494 p.

9. Bodnar T.V. Contractual obligations in civil law (General provisions). study manual: K. Justinian, 2007, 280 p.

10. Dictionary of Ukrainain language: in 11 volumes / I. R. Vyhovanets and others; editorial board: I.K. Bilodid (head) and others. K.: Naukova Dumka, 1978. Vol. 5. 916 p.

11. Moldovan V.V., Chulinda L.S. Jurisprudence. 2 Vol. 2-nd edition. Study manual. K.: Center for Educational Literature. 2010. 184 p.

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