Subcontracting and its Legal Regulations in Hungarian Construction Law

Under the general rules of the Hungarian Civil Code, subcontracting is in principle allowed.

In case of construction contracts, however, the new Civil Code only lays out the general rules and numerous limitations for subcontracting are to be found in the laws specific for the construction industry, primarily in Act LXXVIII of 1997 on the protection of the constructed environment, and its executive Governmental Decree 191/2009. (IX.15.) on rules of activities of the construction industry.

Where the employer is the Hungarian state or an entity other subject to public procurement regulations, the regulations and limitations for subcontractors laid down in Act CXLIII of 2015 on Public Procurement also apply.

Therefore, while the general regulations for subcontracting imply that the expressive permission of the employer is not needed, the industry- or sector-specific laws and regulations may also rule out, or limit the permissibility of the employment of subcontractors.

In summary, under Hungarian law employing a subcontractor is not permitted for construction works in all circumstances, however, the use of subcontractors is generally allowed and is legally possible in most cases.

Under the Hungarian Civil Code and other industry-specific regulations, the main contractor is allowed to let a subcontractor ‘do the work’. The phrasing of the regulation implies that any aspect of the construction work may be performed by a subcontractor. However, it is important to note that under the regulations of the Civil Code, the main contractor is still ultimately responsible for the performance of the work; organisation and supervision of the work of subcontractor(s) remain the main contractor’s responsibility and liability. Subcontractors may also employ subcontractors to perform their work under similar legal relations.

Yes, the employer may specifically stipulate in the construction contract that the use of subcontractors is not permitted. Due to several high-profile ‘chain-defaults’ in payment in the Hungarian construction industry in the past, where main contractors had a large number of subcontractors left unpaid, a number of guarantee rules were added to Hungarian construction law in 2013, including financial guarantees that the main contractor has to meet when employing subcontractors.

In addition, under Public Procurement rules, subcontracting may be subject to further limitations, individual subcontractors may prove incompatible or having banned from participating in public procurements, as well subcontracting being completely ruled out or limited. In particular, Article 138 of the Hungarian Public Procurement Code specifically limits the main contractor rule in case of construction contracts to employ no more than 65% of the value of the construction contract to be subcontracted as a general; this 65% limit also valid for subcontractors who would wish to employ further subcontractors themselves.

BALÁZS & KOVÁTSITS Legal Partnership