NTK vs. FIDIC: Liability Limitations in Construction Contracts

For activities in Norway, within various sectors – offshore, construction, etc. – one must be prepared to use one of the negotiated standard contracts that Norwegian businesses have used for many years, e.g., Norwegian Total Contract 2015 (NTK 15, here simply called NTK). In many other countries, especially in Europe, you will often encounter various FIDIC contracts within offshore and construction, which are widely used particularly on land and in offshore wind to regulate construction and supply contracts. This brief overview article specifically addresses the liability limitations used in these two standard contracts.

When using standard contracts like NTK and FIDIC in international construction projects, it is crucial to understand how liability limitations are structured. Although there are differences in formulation, there are also significant similarities that parties should be aware of during contract negotiations.

Global Liability Limitation – Different Starting Points

Both NTK and FIDIC provide the option to agree on an overall limitation of the contractor’s liability. In FIDIC contracts, the standard starting point is that the contractor’s maximum liability is the total contract amount, while NTK typically works with a cap of 25% of the contract sum. In practice, many clients will demand a higher cap than NTK’s standard, and it is not uncommon for limits of up to 50-100% of the contract sum to be proposed.

FIDIC contracts contain explicit exceptions to the liability limitation. Among other things, the contractor’s liability for the client’s equipment, supplies, and violations of intellectual property rights are not covered by the overall cap. NTK does not have similar explicit exceptions, but the liability limitation only applies to breach of contract. Liability obligations that are not related to breach – e.g., in a risk allocation – may therefore fall outside the limitation.

Indirect Losses and Consequential Damages – Same Purpose, Different Construction

Both NTK and FIDIC exclude liability for indirect losses and consequential damages. However, the structure varies. NTK formulates this as an unconditional exemption from liability, while FIDIC limits liability but with exceptions in cases of fraud, gross negligence, or willful misconduct.

Another significant difference is the use of group concepts. NTK uses definitions such as “Client Group” and “Contractor Group”, which restricts third-party claims within the group. FIDIC does not use similar group concepts, which may increase the contractor’s exposure to claims from third parties.

What Does this Mean in Practice?

Although there are differences in the technical design of liability limitations in NTK and FIDIC, the material consequences can often be comparable – especially under Norwegian or Danish law. However, one should carefully assess how the risk allocation is structured in the specific contract set. Negotiation of the cap size, exceptions, and structure should be done with a full understanding of both case law and the systematic approach of the standard contracts.