Investment approach
Contractor Risk: How the Structure of the Contract Reduces It
A contract does not remove contractor risk but limits it: type of price, written changes, payments for accepted work, handover, subcontracting papers, dispute procedure. Six risks and their tools.
A works contract does not remove contractor risk, it limits it. The client's six risks on a renovation (overrun, missed schedule, defects, the contractor walking away, debts along the subcontracting chain, a dispute) are covered by different terms: the type of price, written changes, payments for accepted work, handover rules, papers on subcontractors and a settlement procedure. Below are a table and questions for the text of the contract.
What risks the client bears and what limits them
| Risk | Tool in the contract | What to check |
|---|---|---|
| Overrun | Type of price (fixed, by unit rates, cost plus), changes only in writing and before the work | Who approves a change, whether there is a ceiling. See renovation budget control |
| Missed schedule | Stage dates, a penalty for delay | What counts as a reason for postponement, for example waiting for a licence |
| Defects | Handover with remarks, retention of part of the payment | The period for fixing them, who chooses the expert |
| The contractor walks away or becomes insolvent | Payments for accepted quantity, retention, the right to hand the work to someone else | Who signs the record of quantities. See milestones and retention |
| Debts along the subcontracting chain | Documents on Seguridad Social and taxes, a limit on subcontracting | Whether there are certificates for each subcontractor |
| Dispute | Procedure for notice, an expert, mediation | Deadlines and written form |
How payments limit the loss if the contractor walks away
A worked example, not a forecast. A contract for 100,000 €. Option A: an advance of 30,000 €, the rest by stages. The contractor leaves having done work worth 18,000 €. You have overpaid by 12,000 € and are looking for a new contractor for the remainder. Option B: payment against a record of accepted work with 10% retention. By the time of departure you have paid 16,200 € for work worth 18,000 €, so you have a cushion of 1,800 € instead of a deficit of 12,000 €. The condition works only if the records are signed by a technical specialist, not by the contractor himself. More on this in the article on technical supervision.
What the law says about defects
Ley 38/1999 (LOE), art. 17.1, sets liability periods from the date of handover without remarks or from the date they are fixed: 10 years for structural defects, 3 years for defects that breach the requirements for habitability, 1 year for finishing defects (the contractor's liability). A consequence for the client: signing the handover starts these periods, so handover is signed after checking, and remarks are entered in writing.
Two caveats. The LOE applies to new buildings and to interventions that change the configuration, volume or structure of a building (art. 2.2); for light renovation the general rules of contract and sale apply. And under art. 17.3 the client-promotor is liable to buyers jointly with the contractor, that is, liability can be passed to the contractor in the contract with him, but not in relations with the buyer. Which regime applies to your renovation is determined by an abogado (lawyer).
Debts along the subcontracting chain
A contractor hires subcontractors, and their debts can reach the client. Under art. 42 of the Estatuto de los Trabajadores, a company that commissions work belonging to its own activity must request from the Seguridad Social a certificate that the contractor has no debts (the Tesorería issues it within 30 days), and is jointly liable for contributions for three years after the end of the order, and for wages for one year. An owner who orders the renovation of his own home, or orders works not in connection with a business activity, is not liable. Whether your company falls under the rule is for an abogado to decide; such certificates are usually requested in any case.
The chain is limited: under art. 5 of Ley 32/2006, the third subcontractor can no longer pass work on, while the first and second can. The limit applies to renovation as well (art. 2 includes rehabilitación and reparación).
Dispute procedure
Since 3 April 2025, Ley Orgánica 1/2025 (art. 5) requires, with a number of exceptions, an attempt at out-of-court settlement before a claim in a civil court: negotiations, mediation or another prescribed method, with written confirmation. If there is no reply or the negotiations ended without agreement, the claim is filed within a year (art. 7.3). So contracts usually set out the steps: written notice of the breach, a time for reply, an independent expert on a technical question, mediation.
When the contractor is linked to the project operator
On DNPI projects, renovation and construction are carried out by BCNYARD, SLU: an independent construction company engaged under contract. The same questions apply to it as to any contractor. In the project contract check who accepts the works, how the budget is confirmed, and whether the digital cabinet shows only the budget and the status of works or also records and certificates. A comparison of budgets from several contractors is described in the article on a contractor tender.
Who it does not suit: someone who expects a detailed contract to replace control on site. A clause in the text does not work without a person who applies it. You can check your own budget and reserve in the investor calculator.
Questions and answers
How many years is a contractor liable for renovation defects in Spain?
For buildings to which the LOE applies, one year for finishes, three years for defects affecting habitability, ten years for the structure. The period runs from handover without remarks. For light renovation the regime is different, and an abogado determines it.
Can I pay a contractor an advance?
You can, if you accept the risk of losing it. There is no single rule. The risk is lower when payments are tied to accepted work with retention, and the advance does not exceed the materials the contractor buys.
Who is liable for the debts of the contractor's subcontractor?
It depends on the client's status and the nature of the works. A company ordering work within its own activity is jointly liable for contributions and wages for the statutory period under art. 42 ET, so certificates are requested in advance.
Do I have to go to court in a dispute with a contractor?
First an attempt at out-of-court settlement is needed, and it must be documented in writing. Court remains the last step.
