Focus on Construction: How to Avoid the Legal Pitfalls of a Construction Project

Lieke projects and construction

What is happening in construction right now, how can risks be minimized, and what should one anticipate in a project? Let’s ask the experts from Lieke’s Projects and construction team!

The Projects and construction team consists of 16 experts. We have decades of experience in project law as well as other real estate and construction law sectors. In these projects, we mainly serve project owners and users. We work closely with our client’s team during the development, implementation and post-implementation phases of each project. Our advice is based on ensuring that the project’s objectives are achieved, and that the project’s risks and disputes are minimized and managed.

New regulation and broad trends are changing the operating environment

The challenging economic situation and uncertainty in the construction industry are currently reflected in the contractual practices in the sector; various insolvency situations, as well as questions on how to prepare for them, have been at the forefront in recent years. “The construction industry in general is currently facing an exceptionally difficult time, especially in contracting, and we see an increase in various performance disruptions in the subcontracting chains. The difficult economic situation is also in many ways affecting how a client’s contract risk should be managed from the perspective of the project as a whole. For example, there have been situations where, from an overall risk management perspective, it makes sense for the client to consider whether it is worthwhile to adhere to the strictest terms of the contract, if the end result is, in the worst case scenario, bankruptcy of the contractual partner”, explains Partner, Juho Lönnblad.

Internationalization also affects contractual practices. “Parties more frequently present the question of whether large construction projects should be contracted based on FIDIC or YSE conditions. The contracting party must be familiar with the contractual obligations and ensure they are effectively passed down in the subcontracting chain”, says Partner Rosa Lång. Contract practices have become more complex. For example, the same pattern could be repeated for a long time in energy projects, since several projects using the same technology were being implemented after each other. The emergence of new technologies has altered this mindset, introducing new types of challenges and questions. Senior Associate Kristiina Välimaa notes: “When new technology is being built in energy plant projects, it is not necessarily clear on a detailed level in advance how the project will be implemented or how it will be regulated in the future.”  The importance of intellectual property rights is also emphasized in such construction projects. It is advisable to clarify, for example, the rights of use related to the project and whether they enable the project form and structure sought by the project owner and the use of the project site throughout its lifecycle.

In addition to changing contractual practices, the construction sector is affected by numerous legislative initiatives. The EU is introducing a lot of new regulation, particularly in relation to energy and industrial projects, and it is important to identify the issues that are relevant to the project at hand. In addition to the green transition, employers now strongly emphasize also responsibility themes such as ESG, green projects, and related reporting obligations in their projects. Sustainability aspects are also reflected in construction contracts, and sustainability obligations are monitored more closely than before. “Compliance conditions must be carefully observed, and actual compliance must be ensured. Doing things well on paper is not sufficient”, Rosa points out.

The Building Act, which came into force at the beginning of 2025, poses new challenges for actors in the construction sector. “Parties should be prepared for the fact that the changes to the Building Act may not yet be fully implemented within the building control authorities. Project developers often benefit from also themselves understanding how the processes should work according to the law”, says Senior Associate Hanna Tuominen. Otherwise, amendments to the Building Act may come as a surprise to project developers only in the final stages of the project. For example, falling below the carbon footprint limits requires calculations to be made at the early stages of design so that the values remain within the permitted range at the authority inspections when the project is taken into use.

The end result must be kept in mind during the project development phase

Careful preparation is essential for successful project development. “Good project development begins with a shared understanding of the project objectives among all parties –  the objectives look very different in a project where the main goal is a continuous rental income compared to a public health center”, say Partner (elect) Alisa Montonen and Associate Amanda Olmo. Bringing legal counsel on board at the early stages of a project can be extremely beneficial. “Thanks to our extensive experience, we understand the key risks and pitfalls of different projects and, on the other hand, we also have a clear view of how to reduce risks from the outset of the project”, says Associate Otto Koskinen.

During the development phase of a project, it is essential to draw up a realistic schedule. The duration of zoning and permitting processes, as well as the potential for schedule delays must be taken into account from the very start of the project. “Project development stalls if the parties are unaware of the required permit processes and are surprised to learn that it can take up to 14 months to obtain a key permit from the authorities”, say Associates Sofia Sokero and Tuuli Salmia. Proper preparation of a project can also easily prevent unnecessary mistakes, such as conflicts of interest that burden the authorities’ decision-making. Risks related to project schedules can also be reduced through active stakeholder engagement, which in the best case can even avoid time-consuming administrative court proceedings altogether. Although administrative court proceedings are not always avoidable, the process can be managed so that it does not become prolonged or expanded. Hanna points out: “For example, instead of responding to every new filing, in certain situations it may be more advantageous for the project developer to state that the filing does not give rise to any further comments, in which case the matter can be concluded more quickly.”

In addition to stakeholder engagement, securing the commitment of project parties helps to facilitate the later stages of the project. Commitment can be ensured, for example, through preliminary agreements if it is known that the actual implementation phase of the project will begin only after a long period of time Senior Associate Michelle Merlich notes: “For example, preliminary agreements for real estates must consider, among other things, the extent of the rights to the reserved area during the preliminary agreement period; whether the landowner has the right to, in the meantime, lease the area to third parties or to use it only for a specific purpose.” However, it is not advisable to include obligations in preliminary agreements that are too tight or impossible to implement in terms of timing. “It is not worth creating mechanisms that will backfire”, Otto summarizes.

During the development phase of the project, it is also necessary to consider the agreements needed, and map out their prerequisites. This is particularly important in all types of projects, such as data centers and wind power projects. Alisa points out: “For a data center project, it may be critical to ensure in advance that the project can actually be connected to the grid in a given area. A wind power project, on the other hand, may also need to be located close to certain other functions. In such cases, it may be crucial to contact other contractual partners early on in the development phase so that the resources available for project development can be used appropriately.”

Accuracy in records and practices is key in a changing industry

Clear contract records and mechanisms are essential in all projects to prevent uncertainty in the final stages about whether the parties have acted as agreed. Matters should also be recorded accurately at the construction site. Rosa says: “We have often participated in follow-up meetings for larger projects, where we can efficiently review the minutes, and ensure that the records correctly reflect the discussions. Unfortunately, records are often made in such a vague and ambiguous manner that it ultimately remains unclear on whose responsibility a particular obligation was intended to be recorded. In dispute proceedings, these records are often given considerable weight. Clear records are an effective risk management tool.”

In addition, during the project, it is worth considering how costs will be distributed in the event of changes and how a legislative amendment will be incorporated into the agreements. Senior Associate Maija Tevajärvi notes: “At the beginning of the project, it is important to agree precisely on the applicable requirements, such as standards and guidelines, as these matters can have a significant impact when handing over the performance.” It is also advisable to include effective dispute resolution clauses in agreements in case of any disagreements.

With the help of an expert, potential ambiguities during the project can be prevented, and the parties can ensure that the agreed practices also work in practice. A lawyer’s insight can be decisive, particularly during the first requests for change works in a construction project, as even the approval of a minor amendment may affect the subsequent stages of the project and the client’s future opportunities in the project. “In the big picture, an individual issue may seem like a minor detail to the client – one that could be easy to accept in order to maintain good relations during the project. In such cases, however, the client should carefully consider whether the situation could be viewed as a “precedent” which could be invoked in all subsequent changes, potentially involving much greater financial significance”, Juho points out. The actual practice followed during the project is increasingly often referred to in claim correspondence, and the parties’ practice may often form the contents of the contract.

Effective conflict management requires careful preparation

If the desired outcome of a project is unclear at the outset, disputes are likely to arise in the final stages. “Over the past year, disputes in the construction industry have clearly increased,” says Senior Associate Essi Winberg. Maija continues: “The parties are more adamant about their rights and, accordingly, demand that the other party fulfill their obligations.”

Partner (elect) Panu Vasama has experience in complex construction and energy projects: “The larger and more complex a project is, the more structured claims management it requires, and the greater the likelihood of disputes. Disputes most often arise concerning the circumstances having caused an event of underperformance. When project records have been unclear or ambiguous, it is difficult afterwards to prove what actually occurred and what the various records were truly intended to mean.”

From inside the project, it is not always possible to see how things appear objectively or in retrospect, which is why legal counsel plays a critical role in projects. The content of claims and minutes, for example, is essential, as incorrect records may even lead to the loss of the right to be heard. Helena Kalmanlehto, Partner (elect) specialized in dispute resolution, says: “One of the most common problems in projects with regard to the defects liability period is the failure to understand the need for, or the unwillingness to properly submit claims, reserve rights to speak, or demand additional guarantees, although these actions are part of normal and professional management of a construction project ” For the sake of good relations, even actions that are clearly contrary to the agreement may be overlooked, and presenting a formal claim may be postponed. Often, a short email is sufficient as the initial claim.

After the two-year guarantee period, responsibility falls under the so-called 10-year liability. In this case, the burden of proof for defects is transferred to the project owner, and regular inspections with the contractor are no longer carried out. Facilities must be maintained and inspected according to the maintenance plan – and, conversely, when an issue is observed, it must be addressed. Essi explains: “Deficiencies in presenting claims are often evident in these cases as well. Additionally, since there is relatively little case law regarding liability after the guarantee period, each situation must be evaluated individually. In matters concerning the 10-year liability, we see a risk that employers may suffer significant losses in the future if proper attention is not given to compliance with procedural requirements.”

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