General contractor

A general contractor (GC) assumes full responsibility toward the building owner for the construction or renovation of a building as a single point of contact-they enter into a contract with the building owner, coordinate all trades, and are liable for the finished work. They typically delegate the actual execution to subcontractors with whom they enter into separate contracts. The general contractor must be distinguished from the general project manager, who also provides planning services.

Advantages and Risks for the Client

The greatest advantage of the GC model is the concentration of liability and coordination efforts in a single point of contact. Claims for defects, responsibility for deadlines, and coordination rest with the GC. For the client, this eliminates the time-consuming process of individually contracting specialized tradespeople. The main risk lies in pricing: GC bids include a coordination surcharge, and competition among subcontractors becomes opaque to the building owner. A poorly chosen GC can lead to significant quality and scheduling issues.

Additional risks:

• General contractor insolvency: If the general contractor becomes insolvent during construction, the client is left with an unfinished building and no direct access to the subcontractors. A performance bond (usually 10 percent of the contract amount) mitigates this risk.
• Quality control: Since the client has no direct contracts with subcontractors, it is more difficult to monitor the quality of individual trades. An independent construction manager or expert can help address this issue.
• Price transparency: The general contractor contract often does not specify individual prices for trades. Negotiating change orders is more difficult when no comparative price for the individual service is known.

Contract Structures and Compensation Models

Typical contract forms include the unit price contract (billing based on actual work performed), the lump-sum contract (fixed price for a defined scope of work), and the GMP contract (Guaranteed Maximum Price). In a lump-sum contract, the general contractor bears the quantity risk; in a unit price contract, the client does. For private construction projects, the lump-sum contract is common; a precise scope of work is essential, as the general contractor is only obligated to perform what is contractually agreed upon.

A carefully drafted scope of work is the foundation of a functional general contractor agreement. The more precisely the scope of work, quality standards, and material specifications are defined, the less room there is for cost-incurring change orders. We recommend having the scope of work reviewed by an independent construction expert before signing the contract.

Liability, Warranty, and Acceptance

The general contractor is liable to the client for all defects in the structure, regardless of whether they were caused by the general contractor or a subcontractor. According to the German Civil Code (BGB), the statutory warranty period is five years from acceptance. This period begins with formal acceptance-ideally with a written report and a joint inspection-and reverses the burden of proof for defects: Until acceptance, the general contractor must prove that the work was defect-free; thereafter, the client must prove the defect.

Selecting a General Contractor: What to Look For?

When selecting a general contractor, we recommend the following criteria:

1. Reference projects: At least three comparable, completed projects with the option for a site visit
2. Creditworthiness: Obtain an extract from the commercial register, current annual financial statements, and tax information
3. Insurance coverage: Business liability insurance with sufficient coverage (at least 3 million euros)
4. Contract performance bond: At least 5%, preferably 10%, of the contract value
5. Warranty bond: To secure claims after acceptance

Practical tip for property owners in Nuremberg and Franconia

In the construction industry of the Nuremberg metropolitan region, medium-sized general contractors with regional expertise in the renovation of historic buildings from the Wilhelminian era or the post-war years are well represented. We recommend visiting at least three of the general contractor’s reference projects before signing the contract, obtaining proof of creditworthiness, and contractually agreeing to a retention of 5 percent of the contract value as a performance bond.

A lawyer specializing in construction law or a building expert should review the contract before it is signed. Especially for historic building renovations in Nuremberg, where unforeseen issues (historic structures, contamination, deviations from construction drawings) frequently arise, clearly defining risks related to additional costs in the general contractor agreement is crucial.

Frequently Asked Questions

What is the difference between a general contractor and a general contractor?

The general contractor performs construction work either directly or through subcontractors. The general contractor additionally handles the planning (architectural and engineering services) and thus bears overall responsibility for turnkey construction.

Is the general contractor also liable for errors made by its subcontractors?

Yes. The general contractor is liable to the client for all defects, regardless of which subcontractor caused the error. The general contractor must seek recourse internally from the subcontractor.

As the client, can I assert claims directly against subcontractors?

Generally no, as there is no direct contractual relationship. An exception is the assignment of the general contractor’s claims against subcontractors, which can be contractually agreed upon. In the event of the general contractor’s insolvency, the prior agreement of such assignment clauses is crucial to still be able to hold the subcontractors liable.

How can a client protect themselves against the general contractor’s insolvency?

The most important measure is a performance bond from a bank or insurance company, which guarantees completion or compensation in the event of the general contractor’s insolvency. Additionally, the payment model should be structured so that only services already rendered are paid for-never advance payments without a guarantee.

Which payment models are common in practice, and which is best suited for private building owners?

For private construction projects in Nuremberg and the metropolitan region, we generally recommend the detailed lump-sum contract: The services are fully defined by a precise scope of work and an execution plan, and the general contractor provides a binding total price. This type of contract protects the client from cost surprises but requires careful preliminary planning. The functional lump-sum contract-in which the general contractor also handles the planning and the result is described in functional terms-offers less control over quality standards and is better suited for experienced clients. Regardless of the contract model, the devil is in the details of the scope of work. Vague wording such as “adequate insulation” or “contemporary execution” almost always works in the general contractor’s favor in the event of a dispute.

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