The Projects and Construction Review: Belgium
Belgium is a federal state with a civil law system and is a founding member of the European Union. The past decades of state reforms have seen the devolved administrations of the three Belgian regions (the Flemish, Walloon and Brussels Capital regions) have an increasingly important role in the (public) projects sector. Belgium's geographical location at the centre of Western Europe and Brussels' role as the heart of the European Union has seen it become an important hub for international trade and politics.
The Belgian projects and construction sector remained strong in 2021, despite the ongoing covid-19 pandemic, with a number of projects reaching financial close.
The publication in September 2016 of Eurostat's guidelines for the statistical analysis of public-private partnership (PPP) structures has brought about a revival in PPP financing after previous years' retrenchment owing to budgetary cuts and uncertainty about the application of the European accounting rules for PPPs.
Various public entities trust the PPP model for large projects in a number of sectors, from transport infrastructure to prisons and schools.
The year in review
Like all countries in Western Europe and generally across the world, Belgium was hard hit by the covid-19 pandemic. In the spring of 2020, a general lockdown was enforced that affected all sectors of the Belgian economy. The measures taken by the Belgian authorities to reduce the spread of covid-19 meant that work on many construction sites had to be stopped by construction companies or by their principals; however, by the end of May 2020, the strict and general measures were eased, enabling the construction sector to continue working (under certain safety conditions), and cross-border restrictions on travel for work purposes were lifted.
In 2021, the specific government measures affecting the progress of ongoing projects were as good as withdrawn, despite a winter 'lockdown light' from late 2020 until the spring of 2021. The ongoing consequences of the pandemic are now primarily seen commercially, in the form of pressure on European and global supply chains, as many parts of the global economy reach pre-pandemic levels, and demand on supply chains rises.
Despite the pandemic, the PPP project sector did not sit still in 2021. In September 2021, the Antwerp Prison PPP project reached financial close for a total funding requirement of €150 million for the design-build-finance-maintain (DBFM) of the new-build prison complex situated in the city of Antwerp, with a 25-year term.
In the renewable energy sector, innovative projects, including floating solar panels, have come to light, and the largest solar park in Benelux reached completion and began commercial operation. Belgium's energy and climate plan proposes a renewables target of 18.3 per cent by 2030. There is still a long way to go to reach that target.
In 2020, Belgium added another 497MW to its offshore wind capacity with the completion of the SeaMade wind farm in the Belgian North Sea to bring the total offshore capacity to 2,262MW. Major changes and investments may be expected in the energy production sector in the years ahead, with the nuclear phase-out being confirmed by the new federal government, and a new capacity remuneration mechanism providing a framework for a capacity auction being announced, which is intended to secure Belgium's electricity supply from 2025 onwards.
In 2003, Belgium decided to phase out nuclear energy from its energy mix and to decommission all seven nuclear power plants after 40 years of operation. As construction took place in the 1970s and the 1980s, the last nuclear power plants should be decommissioned by 2025; however, nuclear power plants currently still account for roughly half of Belgium's power generation.
To avoid problems with the security of supply, the government set up a capacity remuneration mechanism (CRM) to support the development of new generating capacity. The first CRM auction took place in October 2021 for the delivery period 2025 to 2026. In the months after the first auction, the political debate on the ability of nuclear energy to ensure sufficient capacity was reignited, which ended with the decision by the federal government to extend the lifetime of the two 'youngest' nuclear power stations. The CRM will ensure the continued development of energy projects (both traditional and renewable) in Belgium for the coming years, offering many opportunities for all parties operating in the energy sector.
The construction market (supply side) remains highly competitive and is saturated with sophisticated players. As a result, labour costs remain high and margins low for contractors, pushing general contractors to cut back on their own Belgian labour force and work more and more with foreign subcontractors. To fight social dumping and unfair competition, decisions have been taken at both the national government and the EU level, and concrete measures are being implemented by the sector.
Further, skilled general contractors continue to export their know-how and take up work where margins are more enticing, such as in Africa and the Middle East.
Documents and transactional structures
i Transactional structures
In the Belgian market, the transactional structure in particular depends on whether a public building project is concerned, with a public entity as principal. Regarding government-funded infrastructure projects on public property, there is a tendency not to transfer property or (other) rights in rem to investors; however, if specific circumstances so require, granting rights in rem is possible.
More eagerness to obtain rights in rem can be noted on the part of private investors, quite often completed by the standard types of security. In project-financed deals, the 'non or limited recourse' character of the financing contradicts the need for rights in rem. Several ownership structures are used, again depending on the particulars of the project, without there being one particular dominant structure; hence models such as build-own-operate-transfer and build-operate-transfer (BOT) – although rarely identified as such – are all present in the Belgian market, but none of them are viewed as the market standard.
Regarding PPPs, the DBFM model dominates the Belgian market. This model implies that a private party designs and builds the infrastructure, maintains it for an agreed period (completed with an operate component or facility services, or both, as the case may be) and secures the required financing. In the most straightforward situations, this does not imply a transfer of property (resembling a BOT); however, a limited number of DBFM projects do provide rights in rem for the investor, but in such cases the rights in rem either serve as security or are provided for tax reasons.
Using a PPP project as an example of a complex project-financed transaction in the Belgian market, the following are the main documents required:
- DBFM (or other integrated contract) between the principal and (most often) a special purpose vehicle (SPV);
- shareholder agreements and agreements to provide subordinated debt;
- financing agreements and security documents, often based on Loan Market Association models, agreed between the SPV and the lenders;
- in relation to subcontractors of the SPV, design agreements (with an architect, if legally required), engineering procurement construction (EPC) or other types of construction contracts, and operation and maintenance contracts;
- an interface agreement; and
- a set of direct agreements.
iii Delivery methods and standard forms
The Belgian construction market (both public and private) is still dominated by the 'classic' procurement model. An employer contracts a designer, an engineer and – if required – an architect, arranges funding and appoints a building contractor.
When public contracts for work, services or delivery of goods are concerned, a specific set of rules is applicable. The Royal Decree of 14 January 2013 provides a detailed set of the general execution rules (GERs), which are contractual terms and conditions applicable to all public contracts for work, services or delivery of goods. A public authority can only deviate from these rules in specific circumstances. The GERs were most recently amended by way of a Royal Decree dated 22 June 2017, which added, among other things, extensive provisions relating to subcontractors and contract variations.
Nonetheless, in particular in a project finance context where predictability of the eventual revenue is even more important, the DBFM model is increasingly dominant, and the GERs do not apply to this model. The new wave of PPP projects based on the Eurostat guidance will increase standardisation in this field.
Independent use of integrated contracts, such as EPC and design-build, has also increased.
In respect of international model construction contracts, the suite of contracts of the International Federation of Consulting Engineers (FIDIC) is increasingly widespread in Belgium. The release of the 2017 FIDIC suite and its surrounding commentary has increased the exposure of the form to the Belgian market. The FIDIC suite of contracts is now used on all types of energy projects, as well as warehousing, battery and data centre projects.
Large Belgian contractors operating nationally and internationally are now very familiar with the FIDIC forms. The common law-based NEC(4) suite of contracts has received increasing attention, with NEC4, option C with activity schedule contracts being used to procure over half of the ambitious €3.5-billion Oosterweel Link project in Antwerp (the construction of a 15km dual carriageway). This is the first major project in Belgium to be procured using the NEC4 suite.
Although standard forms of Anglo-Saxon inspiration are being used more frequently, and provide the comfort of being recognisable to lenders and foreign investors, their application and enforcement will, in particular with respect to notices and notice periods, not be as strict, literal or rigorous as under common law, but will rather be tempered by the legal principle of good faith proper to civil law.
Risk allocation and management
i Management of risks
Probably the most important risks in a project finance transaction or a construction contract are the risks of insolvency of the other party, loss of the infrastructure that is being built and risks such as force majeure or hardship. In a standard construction contract, little is provided to manage these risks, mostly because Belgian law provides an answer to most legal issues in this respect.
To limit the risk of insolvency of the counterparty (in addition to what is already provided for in Belgian law), contractors will attempt to be paid in regular tranches or according to milestones, as close as possible to a 'cash-neutral' or 'cash-positive' position. If so required, contractors will attempt to suspend further execution (invoking the exceptio non adimpleti contractus) until their invoices are paid. Principals, on the other hand, will require a performance bond, an advance payment bond, a parent company guarantee (where relevant) or a deposit blocked on a bank account, or will withhold a part of the sums due (retention). In public works contracts, contractors should take into account the negative cash flow that the contract will generate.
The risk of loss of the infrastructure prior to completion is usually borne by the contractor. The standard method of mitigating this risk is through appropriate construction all-risk (CAR) insurance.
There is a lot of variety in the market for managing situations of force majeure or hardship. Legally speaking, the risk of force majeure is shared among parties; however, parties are free to contractually regulate force majeure as they deem fit. Hardship would normally be a risk borne by the party affected by it, and may be mitigated somewhat in the case of public contracts under which contractors can often obtain additional time or payments in situations that would qualify as hardship.
When PPPs are concerned, as the financing of the project usually depends on the cash flow generated by the project, funders will never accept the reimbursement of their funds being dependent on chance; hence, much effort is put into identifying all risks relating to the project (sometimes through a risk matrix), allocating those external risks and clearly defining the contractual consequences in terms of money and time in the event that the risks occur.
ii Limitation of liability
Under Belgian law, limitations of liability in the construction industry are a gradually increasing phenomenon.
With regard to basic liabilities relating to a construction contract, the liability for hidden defects and the decennial liability must be mentioned. In addition, general rules of contractual responsibility apply.
Decennial liability under Belgian law, although based on Article 1792 of the (old) Civil Code, is a contractual liability relating to the safety and stability of immovable works. If the safety or the stability of these immovable works are affected or endangered by a defect, a designer or contractor can be held liable for its consequences for 10 years. It is not possible to limit or contract out of this decennial liability, as it is part of Belgian public policy.
Liability for hidden defects constitutes an autonomous ground for (contractual) liability. Contrary to decennial liability, it is possible to contract out of the application of the liability for hidden defects. Under Belgian law, this liability ends 10 years after acceptance of the work, but it is not uncommon to limit this period, for example, to one or two years; however, to the extent that a hidden defect triggers decennial liability, an exoneration or limitation of liability for hidden defects will have no effect.
Generally, where liability caps are present, these include a general limitation on liability (with certain exclusions) and often a cap on any delay and performance-liquidated damages, depending on the nature of the project.
In principle, liability for indirect or consequential losses, or for loss of business or profits, can validly be limited or excluded by contract (except in the case of decennial liability); however, there are limits to these limitations or exclusions of liability. A party can only limit its liability as long as the limitation or exoneration does not strip the essential contractual obligations of 'their contents'. If a clause limiting liability implies that as a result a debtor has no genuine obligation to perform, the limitation is invalid. To exonerate for gross negligence, explicit wording must be inserted.
In application of the principle of law referred to as fraus omnia corrumpit, pursuant to Belgian law it is not possible to exonerate liability for one's own wilful misconduct; therefore, in principle, a clause aiming to exonerate liability for wilful misconduct has no effect. Exoneration is only permitted for the specific situation of wilful misconduct by employees of the concerned party.
Although admissible under Belgian law and a token of good practice, liability caps are not yet standard practice in all construction contracts. For instance, the GERs for public procurement contracts do not contain any limitations of liability.
As force majeure is a concept enshrined in Belgian contract law, force majeure clauses are not a necessity. Nonetheless, customised force majeure clauses are enforceable and even customary in more complex transactions (especially when a lender is involved). The concept of hardship, however – sometimes referred to as application of the clausula rebus sic stantibus – is not part of general Belgian contract law yet (see infra. in respect of the gradual implementation of a new Civil Code). Only when public contracts are concerned can a concept close to hardship be invoked; hence, particularly in private contracts, a hardship clause could prove useful.
iii Political risks
Political difficulties have had little effect on the performance of project finance or construction projects in Belgium. As a result, other than standard force majeure provisions relating to war and civil disturbance, among other things, particular arrangements to mitigate political risks are rarely provided.
Few doubt that, in the case of revocation of a contractually valid agreement or of nationalisation or expropriation, the involved counterparty would be indemnified. Contractual and other rights, including those of foreign investors, are well protected in Belgium.
Security and collateral
For ordinary small-scale financing, the funder is usually granted a mortgage on both soil and structures to secure at least part of the financing. Mortgages are ranked according to their date of inscription in a special register. To limit costs relating to a mortgage, sometimes only a power of attorney is provided in favour of the funder, which allows the funder to unilaterally obtain a mortgage when this proves necessary.
When relevant in view of the specific project, it is common practice to require rights in rem. These provide economic rights of property over the assets concerned, and as a result constitute a powerful security.
In other situations, it is common to require securities such as a commercial pledge, in other words, a possessory right of pledge entitling the creditor to have the pledged asset sold and be paid preferentially out of the sale proceeds. A pledge on shares (e.g., of an SPV) or a pledge on bank accounts is customary.
The Act of 30 May 2013 on security interests on movable assets significantly changed the legal framework for the creation, perfection and realisation of security interests on all kinds of movable assets, whether tangible or intangible, including receivables. In particular, it introduces, in addition to the traditional possessory pledge, a non-possessory pledge on movable assets, which will be subject to registration in a newly created public register. These legal changes aim to modernise, simplify and make the rules on security interests on movable assets more coherent.
Parties or lenders sometimes require a bank guarantees or a parent company guarantee, or – when contracting with entities created by public authorities – a state guarantee by the concerned public authorities. Belgian private projects generally align with international market practice in this respect (especially in project-financed transactions).
Step-in rights for funders – which allow them to take over rights and obligations – are also admissible in Belgium. These rights are contained in most funding agreements and are standard practice when direct agreements are concerned.
Bonds and insurance
Where standard public works contracts are concerned, performance is secured through a deposit of 5 per cent of the price. In private contracts, a variety of mechanisms can be observed, including the mechanism of withholding part of the price or invoiced amounts until provisional or final completion.
When project finance is involved, in particular with international elements, it has become customary to require bank guarantees to secure performance, in addition to parent company guarantees. In smaller or local transactions, contractors are reluctant to provide bank guarantees, in particular the on-demand type.
The common insurances in a construction context are:
- civil liability insurance, which covers damage to property, life or the health of a third party;
- CAR insurance, which covers risks that are usually associated with a project in the course of construction;
- decennial liability insurance, which covers decennial liability (see Section IV.ii); and
- professional liability insurance, which covers the contractual liability of the designers involved.
Only architects are under a statutory obligation to carry insurance for their contractual liability for all types of projects. Architects and contractors are obliged to maintain decennial liability insurance for residential projects. Decennial liability insurance requires the involvement of an independent control agency (e.g., SECO, AIB Vinçotte or Socotec) to sign off to the insurance company so that the insurance may be granted. As decennial liability insurance is considered by the market to be expensive, it is not standard practice for all projects. One is likely to encounter such insurance when project finance is involved or for project development projects.
Enforcement of security and bankruptcy proceedings
Outside the context of bankruptcy proceedings, a security can only be enforced if a debtor has failed to meet a payment obligation on its maturity date or any other obligation deemed essential under the (funding) agreement. The debtor should be given notice (notice of default) that it must comply with its obligations on the due date. If the debtor is still capable of meeting its obligations, the creditor should, in writing, allow a reasonable period to remedy this breach, unless it is sufficiently clear that the debtor is, or will no longer be, able to meet them.
A business that is in financial jeopardy, but can still be saved from bankruptcy, can apply for reorganisation proceedings. The Belgian version of Chapter 11, the Act of 31 January 2009 on the continuity of enterprises (as amended), introduced a new form of reorganisation proceedings and a system to enable enterprises in difficulty to recover their financial health. The aim of the new system is to sustain the continuity of businesses as much as economically possible by making reorganisation more accessible to debtors suffering financial difficulties and presenting options for recovery.
A business must file for bankruptcy if it has permanently ceased its payments and lost the confidence of its creditors. Only individuals or legal bodies conducting a business can be the subject of bankruptcy proceedings. In addition, creditors such as lenders can set off the court proceedings leading to a bankruptcy – declared by the commercial court – and the nomination of a receiver.
There is a 'suspect period', starting when payments ceased and ending on the declaration of bankruptcy. Once a request for bankruptcy is filed, all (other) enforcement measures are suspended.
Once the business has been declared bankrupt, in principle, all creditors are equal; however, if creditors have conflicting rights in relation to the proceeds of a bankruptcy, the distribution of proceeds is as follows:
- statutory claims: specific preferential rights granted by law to specific classes of creditors or over specific assets, but limited to those assets. An example is the preferential right granted to the unpaid seller of machinery. General preferential rights also exist, for instance, regarding workers' wages, social security contributions and tax;
- secured creditors: creditors holding a mortgage, commercial pledge, retention right or general business charge, among other things; and
- unsecured creditors, who are treated equally: the net proceeds from the debtor assets are distributed in proportion to their claim.
i Licensing, social dumping and work permits
A major distinction should be made between EU nationals and all others in terms of labour. Nationals of EU Member States enjoy the benefits of free movement of workers within the European Union. All other workers need a work permit to work in Belgium.
There are different kinds of work permits that are granted for a limited or unlimited period. Residence and work permits are now most commonly issued as a single permit. The procedures for obtaining work permits for non-EU nationals differ between Belgium's autonomous regions.
European companies often post employees to another EU country to work there temporarily. These 'posted workers' must be paid at least the minimum wage of the host country, yet their wages can be lower than the wages of local workers: there is no 'same pay for the same work at the same place'.
Posted workers are EU citizens who have an employment contract in their home country and are temporarily posted to a host EU country by their employer when their employer provides a certain service (e.g., if a Bulgarian construction company builds a house in France). Belgium is one of the countries where the number of posted workers is highest.
A number of safeguards are in place to protect the social rights of posted workers, according to the Posting of Workers Directive 96/71/EC, adopted in 1996 and in force since December 1999. On 21 June 2018, the Directive amending the Posted Workers Directive was adopted by the European Union, which came into force in Belgium on 30 July 2020 through the Act of 12 June 2020 on posted workers. Posted workers are subject to the host country's laws, regulations or administrative provisions concerning:
- minimum rates of pay (i.e., minimum wage), including overtime rates;
- maximum work periods and minimum rest periods;
- minimum paid annual holidays;
- conditions of hiring out workers, in particular the supply of workers by temporary employment undertakings;
- health, safety and hygiene at work;
- protective measures in the terms and conditions of employment of pregnant women or those who have recently given birth, of children and of young people; and
- equal treatment between men and women and other provisions on non-discrimination.
In the construction sector, where the core conditions of employment listed above are laid down by collective agreements or arbitration awards that have been declared universally applicable, Member States are also obliged to ensure the application of these conditions to posted workers.
While minimum wage requirements of the host country apply to posted workers, posted workers continue to pay their social security contributions in the Member State where they are normally based for up to two years. During this period, they do not pay social security contributions in the Member State where they are temporarily posted. Companies providing cross-border services, therefore, have a cost advantage when social security contributions are lower in their home country than in the host country.
There have been various abuses, some relating to exploitation of posted workers and others to subcontracting, in which posted workers have sometimes not been paid, and others relating to a company disappearing or not having ever existed (letterbox company).
To combat this, the European Commission proposed an Enforcement Directive in March 2012, which was approved on 13 May 2014 (Directive 2014/67/EU). The related implementation Act for Belgium came into force on 1 October 2017 with immediate effect, giving the social inspectorate new powers to monitor compliance with the Posted Workers Directive. This includes the designation, by an employer who wishes to use posted workers, of a liaison officer who is responsible for providing any information requested by civil servants in respect of the posted workers.
The most striking development from the Enforcement Directive for the construction industry is the introduction of possible joint and several liability for the employer and main contractor in respect of the supply chain. It is therefore likely that in arm's-length subcontractual arrangements, the employer or contractor will require an indemnity from its contractor or subcontractors in respect of any liabilities arising from the Posted Workers Enforcement Directive.
At the national level, Belgian industry stakeholders identified 27 national and 13 EU measures to fight unfair competition. Key measures include:
- the compulsory Limosa registration system, to better supervise the number of foreign employers in Belgium; and
- the compulsory registration (since March 2016) of attendance on construction sites for any worker on a construction project with a value of more than €500,000 (known as the Checkinatwork scheme).
Belgium has extremely broad and detailed legislation regarding urban development, environmental issues and sustainability. This legislation is based on EU directives to a very large extent. The baseline is that, for building work, a rigid procedure must be followed to obtain a building permit and an environmental permit prior to starting the work. In the Walloon region, these can be combined in a single permit and, since 2017, this has also been the case in the Flemish region, where these permits will be combined into an 'all-in-one permit for physical aspects'. Permits are the Achilles heel of many proposed construction and infrastructure projects.
Besides these particular rules, Belgium has extensive legislation on air pollution, discharge of water, environmental impact assessments, general sustainable development and carbon emissions, among other things.
iii Equator Principles
Nearly all financial institutions dominating the Belgian project finance market, in particular PPPs, have adopted the Equator Principles. As a result, it can be assumed that most project finance transactions and construction contracts, insofar as they apply, are subject to the Equator Principles.
iv Responsibility of financial institutions
Financial institutions are subject to general Belgian law; hence, all criminal, contractual and tortious liability legislation applies to financial institutions. There is a mechanism to convert a theoretical punishment for corporate criminal liability from imprisonment into a pecuniary punishment.
In administrative terms, the Financial Services and Markets Authority is the most important entity in Belgium. It supervises the rules of conduct applicable to financial institutions to maintain confidence in the financial markets and to ensure that investors and financial consumers are treated honestly, fairly and professionally.
PPP and other public procurement methods
i ESA accounting rules
A main driver for public authorities opting for the PPP model is its potential for an off-balance treatment under the ESA 2010 accounting rules of the European Union.2 The ESA 2010 rules operate a binary system: the assessment is that the project is either a wholly owned government asset or else it is a non-wholly owned asset (i.e., on or off-balance sheet).
In the years following the ESA 2010 rules, Eurostat (the European agency in charge of monitoring the national accounts) adopted a much stricter application of the rules towards certain countries, including Belgium, leading to uncertainty and public authorities (temporarily) abandoning important infrastructure projects.
To clarify its statistical treatment of PPPs, Eurostat released a comprehensive document in September 2016 in cooperation with the European PPP Expertise Centre of the European Investment Bank, and published under the aegis of both institutions.3 This 150-page document examines in detail the project structure of a typical PPP deal, and highlights particular risk allocations that it considers will point to a project being treated as on or off-balance sheet.
The Eurostat guidelines give all stakeholders clear indications of an appropriate fiscal and project risk allocation for the public sector body to assume in a PPP project, and practitioners in Belgium have welcomed the important clarifications.
ii Procurement methods
Belgian public procurement legislation distinguishes between four types of procurement procedures referred to as a sale by auction, a call for tender, a negotiated procedure and competitive dialogue.
In the event of a sale by auction, the contract must be granted to the tenderer who has submitted the lowest regular tender. In the case of a call for tender, the contract must be granted to the most advantageous tender, according to the award criteria (e.g., price, quality or timing) mentioned in the contracting documents. The contracting authority has a free choice between these procedures, both of which may be awarded by means of an open or restricted procedure. In an open procedure, all interested contractors may submit tenders; in a restricted procedure, only those contractors so invited by the contracting authority may submit tenders.
The negotiated procedure allows the contracting authority to consult the economic operators of its choice and to negotiate the terms of the contract with one or more of them. PPP transactions are still usually tendered through the negotiated procedure, although recently competitive dialogue has also been introduced into the Belgian legal system.
Most PPPs involve a selection phase followed by one or more offer phases comprising rounds of negotiations leading to subsequent offers, and usually a 'best and final offer'. Finally, after the preferred bidder is selected, final negotiations are conducted and the contract is closed. Usually, contract close concurs with financial closure between the contractor and its funders.
Belgian legislation on public procurement has been updated and was codified in the Act of 17 June 2016 concerning public procurement (the new Public Procurement Act). This Act contains the core of the coordination and codification of all existing public procurement regulations and the transposition into Belgian law of the 2014 European Procurement Directives. There are, in addition, several royal decrees implementing this Act.
The Act of 15 June 2006 was replaced on 17 June 2016 (in force since 2017) by new legislation to implement the following European directives:
- Directive 2014/23/EU of 26 February 2014 on the award of concession contracts;
- Directive 2014/24/EU of 26 February 2014 on public procurement and repealing Directive 2004/18/EC; and
- Directive 2014/25/EU of 26 February 2014 on procurement by entities operating in the water, energy, transport and postal services sectors and repealing Directive 2004/17/EC.
Contracting authorities must always respect the general principles relating to good administration and the fundamental principles of the treaties of the European Union when they award public procurement contracts. Of these general principles, the most relevant in terms of public procurement are equal treatment and non-discrimination, free competition, transparency, legal certainty and proportionality. These principles can also be used when interpreting Belgian (and European) public procurement law and have to be taken into consideration in situations where no explicit regulation exists.
The suspension or annulment of the decisions taken by contracting authorities are brought before the Council of State, except in cases where the contracting authority is not a public authority in the sense of the legislation on the Council of State. In this case, suspension or annulment actions are brought before the civil courts. Applications for review do not have an automatic suspensive effect.
The civil courts have the exclusive competence for damage claims, for the suspension and annulment of public procurement contracts and for all disputes concerning the execution of these contracts.
Foreign investment and cross-border issues
The Belgian economy is open to foreign lenders, investors and contractors. There are no specific restrictions on foreign investments and ownership. On the contrary, Belgian legislation contains certain particularities that should attract foreign investment, such as the 'deduction for risk capital' (also known as 'notional interest deduction'), which is a tax incentive to reinforce Belgium as an attractive location for investors.
In relation to public works licensing, it is essential that both national and foreign contractors are licensed to build, or are able to prove that they have equivalent experience and skills to entitle them to a licence. These licences are granted in different grades according to the size of the construction work, and in different categories and subcategories.
As Belgium has an open economy, there are no real currency controls that would make it difficult or impossible to change operating funds or profits from one currency to another, nor any controls or laws that restrict the removal of profits and investments.
The Withdrawal Agreement4 concluded between the European Union and the United Kingdom establishes the terms of the United Kingdom's orderly withdrawal from the European Union.
The Withdrawal Agreement entered into force on 1 February 2020, after having been agreed on 17 October 2019.
The transition period ended on 31 December 2020, and relationships between the European Union and the United Kingdom are now provisionally based on four treaties, most notably the Withdrawal Agreement and the EU–UK Trade and Cooperation Agreement.5
As of 1 January 2021, the United Kingdom lost all the rights and obligations it had as an EU Member State and during the transition period under the Withdrawal Agreement. While the EU–UK Trade and Cooperation Agreement is intended to limit disruptions compared to a situation without an agreement being in place, it no longer benefits from seamless access to the EU Single Market and Customs Union, or from EU policies and international agreements (including its free trade agreements with other third countries).
i Special jurisdiction
There are no specific courts or tribunals in Belgium that deal with project finance transactions or construction contracts. Depending on the specific circumstances, disputes fall under the jurisdiction of the civil or commercial courts. In practice, each court will have a specialised construction chamber.
Nevertheless, two administrative courts are important in a project finance context: the Council of State at the federal level, and the Board of Permit Appeals in the Flemish region. The latter is competent to rule on (appeals against), among other things, building permits in the Flemish region, and the former is competent to rule on administrative decisions taken by most public authorities.
ii Arbitration and ADR
The use of alternative dispute resolution (ADR) in the Belgian market is increasingly popular. Nonetheless, its market share is still limited, and disputes regarding projects or construction are usually dealt with by the courts, quite often combined with expert advice to the courts. In particular regarding public contracts or strictly national transactions, ADR is applied only occasionally.
In a commercial context, the use of arbitration precedes mediation or any other ADR mechanism. The governing legislation regarding both (international and domestic) arbitration and mediation can be found in the Judicial Code. The general rules on arbitration can be found in Part 6 of the Judicial Code, which was completely revised as of 1 September 2013 (largely based on the UNCITRAL Model Law). The rules on mediation constitute Part 7 of the Judicial Code.
The importance of expert determination in construction contracts is growing, in particular regarding large or long-term projects, requiring an efficient settlement of certain categories of disputes. In general, the use of expert determination is limited to technical issues.
Dispute resolution or adjudication boards are still rare. In recent PPP projects, however, dispute boards do appear. Typically, they act as an intermediate procedure, prior to falling back on the courts or arbitration. Most probably, the foreign influence on the structures used for these PPPs and the standardisation in this field explains why these boards are starting to appear.
The most prominent Belgian organisation for institutional arbitration and ADR is CEPANI,6 which provides rules on arbitration, mediation and (technical) expertise. CEPANI is the Belgian equivalent of the International Court of Arbitration or the London Court of International Arbitration, and its rules and procedures are well known and align with international market practice for arbitration. New CEPANI arbitration rules and CEPANI mediation rules entered into force on 1 January 2020.
The Belgian courts take a rather neutral approach to arbitration, neither favouring it nor showing a particular bias against it. Tax disputes and criminal matters are excluded from arbitration. When an individual is concerned, caution is required, as use of arbitration in consumer, insurance and labour matters is restricted. Automatic domestic arbitration does not exist in Belgium.
The New York Convention entered into force in Belgium in 1975. Upon ratification, Belgium declared that it will only apply the Convention to recognition and enforcement of awards made in the territory of another contracting state. If an award is contrary to public policy or the dispute was not arbitrable, enforcement will be refused. Enforcement of a foreign award will also be refused if one of the grounds for setting aside the award exists.
Belgium ratified the ICSID Convention in 1970 and has signed a large number of bilateral investment treaties providing for either ad hoc or ICSID arbitration. The very first ICSID arbitration against Belgium under the ICSID Convention was dismissed in 2015,7 while Belgian investors have initiated several proceedings against foreign countries.
Outlook and conclusions
Emerging from the initial global shock of the covid-19 pandemic, there were few indications that the pandemic significantly delayed major project approvals in 2021, and this trend appears to have continued into 2022. The modern monetary policy of 'spending your way out of a crisis', which appears to be popular within EU circles during the pandemic, may give an extra boost to public and private projects in the coming years.
However, the cumulative effects of the pandemic, the energy crisis and the outbreak of the war in Ukraine (which at the time of writing is ongoing) have increased pressure on supply chains and have led to global inflationary pressure. Commercial negotiations between project sponsors and contractors will continue to be affected by these issues in 2022 and potentially beyond as contractors attempt to mitigate their pricing risks through price revision, indexation and hardship clauses.
From a legal perspective, the formal legislative proposal for a brand new Civil Code chapter on contracts was adopted on 21 April 2022. It is expected to enter into force on 1 November or 1 December 2022, depending on its effective publication date in the Belgian Official Bulletin. This new chapter will not revolutionise Belgium's civil law traditions, but will rather modernise and codify the 200-year-old statute, with one major development: the introduction of the hardship principle into Belgian contract law. Before that, on 30 January 2020, the Belgian parliament adopted a reform of the Civil Code chapter on goods, which will have a significant impact on real estate transactions. This new chapter entered into force and applies to new transactions as of 1 September 2021.
In addition to the ongoing Civil Code reform, the Act of 4 April 2019 introduced three new sets of rules governing business-to-business (B2B) relationships: a prohibition of unfair market practices (which entered into force on 1 September 2019), a prohibition of abuse of economic dependence (which entered into force on 22 August 2020) and rules on unfair or prohibited B2B contract clauses (which entered into force on 1 December 2020). Parties in the private construction sector should pay specific attention to this far-reaching legislation on commercial transactions.
The new federal government's energy policy, particularly relating to the confirmation of Belgium's nuclear phase-out in 2025, will shake up the energy market further, as Belgium seeks to secure its future electricity supply. The federal government's new capacity remuneration mechanism, through which the first post-2025 capacity was auctioned in 2021, will result in a number of significant projects (including new-build projects) reaching financial close in 2022 and being constructed in the coming years.
Belgium remains an attractive and sophisticated market for both private and public projects, which should remain the case in coming years regardless of any economic fallout from the covid-19 pandemic, the energy crisis and the war in Ukraine.
1 Rony Vermeersch is a partner and Mitch Windsor is an associate at Stibbe.
2 ESA 2010 stands for the latest version of the European System of National and Regional Accounts, the EU accounting framework for a systematic and detailed description of an economy. The ESA 2010 was published in the Official Journal as Annex A of Regulation (EU) No. 549/2013.
3 'A Guide to the Statistical Treatment of PPPs', September 2016.
4 Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community, OJ C 384I , 12.11.2019, pp. 1–177.
5 Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, and the United Kingdom of Great Britain and Northern Ireland, OJ L 444, 31.12.2020, pp. 14–1462.
7 ARB/12/29 – Ping An Life Insurance Company of China, Limited and Ping An Insurance (Group) Company of China, Limited v. Kingdom of Belgium.