Questions for tariffs quarterly bulletin: Denmark

Describe the taxes and duties regimes in your location’s standard form contracts

What are your standard form contracts?

In Denmark, construction law is mainly based on the following bodies of law:

• Contract law – law that governs agreements and arrangements between parties
• Law of torts – law that addresses and provides remedies for civil wrongs not arising out of contractual obligations
• Case law – decisions from the Danish national courts and The Danish Arbitration Board for Building and Construction
• Standard form contracts:
  • AB 18 – General conditions for the provision of works and supplies within building and engineering.
  • ABT 18 – General conditions for turnkey contracts.
  • ABR 18 – General conditions for consulting services.
  • NB. AB Consumer – General conditions for the provisions of works within building to consumers. (A standard form contract that takes into consideration that the employer is a non-professional party.)

As indicated above, there is no statutory regulation of construction contracts. Instead, standard terms and conditions – commonly referred to as “agreed documents” – have been developed through collaboration among representatives of the key stakeholders involved in the construction industry. The standard form contract terms will only apply if there is an explicit agreement between the parties.

The standard form contracts, particularly AB 18 and ABT 18, are widely used in both public and private construction projects. AB 18 is generally used in cases where the employer provides the design, while ABT 18 is used for design-build projects where the contractor also performs the design. A comparison of the two forms reveals that they allocate risks and responsibilities in a similar way, with only minor differences in numbering and the design obligations.

Once adopted, they form the contractual basis unless expressly derogated from. In Danish construction practice, the standard form contracts AB 18 or ABT 18 are almost invariably adopted as the contractual basis when agreements are entered into between professional parties.

Which party bears the risk of taxes and duties?

• Before the contract is entered into:

Under the AB system, the contractor’s tendered contract sum is generally fixed, and the contractor assumes the risk of all taxes, duties, and cost levels that are in effect at the time of tender. According to AB 18 clause 34(1)/ABT 18 clause 32(1), the contract sum is considered fixed for work performed within 12 months from the tender date, unless otherwise agreed upon. Accordingly, the contractor is required to include all applicable taxes and duties (with the exception of VAT) in the submitted price estimate. Typically, VAT is excluded from the contract sum and invoiced separately, in accordance with AB 18 clause 34(3)/ABT 18 clause 32(3). During this fixed-price period, the contractor assumes the risk of any cost increases, including tax or duty adjustments, occurring within the first 12 months after the tender submission.

• After the contract is entered into:

In accordance with clause 35(1) of AB 18 and clause 33(1) of ABT 18, the contract price may be adjusted if governmental intervention, including the introduction or amendment of taxes, levies, or duties, results in a substantial increase or decrease in cost after the contractor has submitted its tender. This clause aligns with the fundamental principle that the contractor’s price is determined within the legal and fiscal framework in effect at the time of tender. Consequently, the employer is exposed to the risk of unforeseen legislative or fiscal changes occurring post-contract. The adjustment is subject to verification, typically through official notification by a public authority, and ensures that the contractor is not unduly burdened by unforeseeable measures enacted after contract formation.

 

If taxes and duties change after the contract is entered into, what relief, if any, is available under your location’s?

Standard form contracts? eg change in law provisions, force majeure

Summary: AB 18 and ABT 18 stipulate that contractors facing increased costs or delays due to new taxes, duties, or other legal changes after contract signing have multiple contractual remedies. These include adjustments to the contract sum for significant cost impacts, compensation for extraordinary price hikes, and extensions of time and compensation for delays caused by authority orders. The employer cannot demand the original price or time if legislative changes have made performance more expensive or slower. Standard contracts clearly assign such post-contract risks to the employer (except in trivial or very common scenarios). The duty of cooperation and good faith (AB 18 clause 33/ABT 18 clause 31) also obliges both parties to collaborate in order to mitigate the impact of such changes in law or costs.

Change in law provisions: Both AB 18 and ABT 18 include provisions addressing governmental interventions and law changes occurring after contract formation. AB 18 clause 35(1) (mirrored in ABT 18 clause 33(1)) stipulates that “the price is adjusted if a central government intervention carried out after the tender submission has caused significant increases or decreases in costs.” In other words, if new legislation, taxes, duties, or similar government measures introduced after the tender materially affect the cost of the works, either party may request an adjustment to the contract sum. The adjustment is based on the officially recognised cost impact (eg, a government notification of the change). This clause addresses changes in taxes or duties, such as an increase in the VAT rate, the introduction of a tariff, or other public levy that significantly raises construction costs. In such cases, the right to amend the contract price would be triggered. Both upward and downward cost effects are addressed, meaning that a cost-reducing change would allow the employer to seek a price reduction.

Extraordinary price increases: Additionally, AB 18/ABT 18 addresses extreme market cost changes that may indirectly result from regulatory or economic shifts (such as trade tariffs or supply shocks). AB 18 clause 35(2) (ABT 18 clause 33(2)) permits the contractor to claim compensation for “extraordinary increases in the price of materials or fuel” used in the works. This clause is typically invoked if a post-contract event (eg, a sudden tariff or tax on key materials) causes a material price spike beyond normal inflation. The standard establishes explicit thresholds: The price increase must surpass 10% of the material’s price at tender (taking into account timing considerations), and the cumulative impact must exceed 0.5% of the contract value. Note that compensation is only provided for excess amounts beyond 10%. These conditions ensure that only extraordinary cost increases (often driven by external factors like new import duties or global crises) qualify for relief. In the event that they do, the contractor is compensated for the cost increase (with the exception of lost profit) on those items.

Force majeure and authorities’ orders: Apart from price adjustments, AB 18/ABT 18 treat certain law changes as excusable or compensable events under delay and disruption clauses. For instance, if a new law or public authority order prohibits or halts certain construction activities (as seen during the COVID-19 lockdown measures), it may constitute a force majeure-type event. AB 18 and ABT 18 specify “public enforcement notices or prohibitions” beyond the contractor’s control as grounds for time extension and, in some cases, cost compensation. Specifically, if work is delayed by a new regulatory restriction (not due to any fault of the contractor), the contractor is entitled to an extension of time and to compensation for the delay costs (excluding profit) under the contracts’ delay provisions. For instance, a sudden change in building regulations mid-project that forces a work stoppage or redesign can be treated as a variation or excusable delay. The contractor would receive additional time to comply, and reimbursement of extra costs incurred due to the change (such as idle labour or redesign efforts), with the employer bearing those costs as they arise from an employer-risk event under AB 18/ABT 18.

Contractual termination (cancellation): In exceptional circumstances where a change in law or public order renders contract fulfilment impracticable or “unreasonably burdensome” for the employer, the standard terms permit a form of termination. AB 18 clause 26(4)/ABT 18 clause 26(4) stipulates that in the event of unforeseen circumstances (notwithstanding thorough initial studies) resulting in public orders that make the continuation of the works impractical or excessively burdensome, the employer is entitled to cancel the contract. In the event of such cancellation, the contractor is entitled to compensation for losses incurred due to the termination, with the exception of loss of anticipated profit on unperformed work. This mechanism serves as a final recourse in the event that a post-contract change, such as a new law that outright bans the project or significantly alters its nature, fundamentally alters the foundation of the contract. This agreement enables the parties involved to disengage from the project while ensuring the contractor is fully compensated for their expenses (though not for the total profit, as the project is not completed).

Laws – statutes, case law

In summary, Danish statutory law contains no specific provision obliging an employer to compensate a contractor for post-contract tax or duty increases. The primary statutory instrument, the Contracts Act Section 36, has the potential to provide redress in cases of extreme unfairness. However, this section establishes a high standard, and its application in construction contexts is seldom successful. Consequently, contractors and employers in Denmark place significant reliance on the stipulated contract terms (such as AB 18/ABT 18) to manage changes in taxes, duties, or other legislation.

According to Danish law, there is only limited recourse available for circumstances beyond the terms of the contract, such as tax increases. There is no overarching “hardship” statute that automatically adjusts contracts for unforeseen events. In Denmark, the general principle of pacta sunt servanda – agreements are binding as written – ensures that contractors are bound to the agreed price and timeline, even if performance becomes more expensive, unless a legal exception applies. One key exception is the Danish Contracts Act Section 36, a general equity provision. Section 36 allows a contract (or term) to be set aside or modified if enforcing it would be manifestly unreasonable or contrary to equitable principles due to changed circumstances. In principle, this could allow for the adjustment of a contract in cases where, for instance, an unexpected and substantial tax increase renders the agreement significantly inequitable. However, in practice, the standard outlined in Section 36 is very strict, and it is rarely applied in commercial construction cases. Courts are hesitant to reinterpret a contract solely based on economic hardship. The application of Section 36 to subsequent events is limited and dependent on specific facts. A change in taxes or duties would typically need to be drastic and unforeseeable to even be argued under this clause.

In certain cases, Danish case law has acknowledged the doctrine of “bristede forudsætninger” (failed assumptions) or unforeseen events, though there is no standard judicial procedure for cost adjustments. Contrary to the practices in certain other jurisdictions, Denmark does not automatically excuse performance or adjust prices for new taxes. Therefore, in the absence of the AB 18/ABT 18 contractual mechanisms, a contractor would typically assume the risk of tax changes unless the contract explicitly allocates that risk to the employer.

 

For particular market segments in your location, what changes, if any, have employers or contractors made recently to the usual risk allocation?

Public sector projects: In Danish public works contracts, the AB 18/ABT 18 conditions are typically applied with minimal modifications. As a general rule, public authorities maintain the standard risk allocation, which, as previously mentioned, places the burden of risk related to unforeseen tax or law changes on the employer. There is an expectation of fairness and adherence to the AB standards in public procurements, so radical shifts of risk onto contractors are uncommon in traditional public projects. However, there has been a recent shift in public client attitudes towards price adjustment clauses, driven by the need to adapt to global market fluctuations.

In recent years, particularly after 2021, there has been a notable increase in material costs and the implementation of new import tariffs. This has led to an elevated level of risk associated with fixed-price contracts. In response, many public tenders now include variable price mechanisms or invoke the AB 18 extraordinary adjustment clause to accommodate unstable market conditions. For instance, a municipal tender might explicitly allow for additional compensation in the event of steel price increases or the introduction of “green” taxes on materials. This would encourage bidders to offer reasonable prices without significant risk contingencies. This represents a departure from previous practices, where fixed prices were the norm. However, recent significant fluctuations have prompted public employers to adopt a more collaborative approach, sharing risk temporarily or for specific materials to ensure project viability. Nevertheless, the core legislative change risk (eg, a new tax law mid-project) remains with the employer under the standard AB terms, and public entities generally accept this as the default position.

Private sector projects: In private contracts, there is greater freedom to deviate from standard forms, which can result in variations in risk allocation. Many private developers also use AB 18/ABT 18 as a base, meaning they would similarly bear post-contract tax change risks. However, in bespoke or heavily negotiated contracts, private employers sometimes attempt to shift more risk to contractors. For instance, a private contract might be drafted as a lump-sum “fixed price no matter what”, effectively deleting or limiting the AB 18 clause 35 adjustments or narrowing what counts as a compensable change in law. In a robust market, contractors may have accepted such provisions (frequently with pricing contingencies). However, recent market trends indicate a growing reluctance among contractors to assume unlimited exposure to unpredictable changes, such as sudden tariffs, fuel cost surges, or new duties like carbon taxes.

The recent surge in material costs and supply-chain issues has prompted a shift toward contracts based on variable prices and mechanisms to accommodate unstable conditions, even within the private sector. From 2021 to 2023, numerous private projects incorporated special price escalation clauses or negotiated thresholds, such as allocating excess costs 50/50 beyond a certain point. Therefore, while private employers may have historically opposed AB 18 clause 35/ABT 18 clause 33 or force majeure claims, the market volatility of the past years has led to more balanced risk-sharing in practice. In the context of private deals, it has become increasingly prevalent to explicitly address tax or price changes. This can be achieved through the implementation of either AB provisions or tailor-made clauses. The rationale behind this practice is twofold: First, it ensures that contractors are not deterred, and second, it prevents contract prices from becoming inflated.

Large infrastructure and PPP projects: Major infrastructure projects (such as highways, rail, energy projects) often use either the ABT 18 framework with additional bespoke terms or international forms like FIDIC. These major projects generally span multiple years and are susceptible to legislative changes (such as environmental regulations and taxes on emissions). In this segment, there is a growing trend of carefully defining change-in-law risk: Contractors bear ordinary risks, but “Change in Laws” clauses are included to cover major, unforeseeable regulatory shifts. For instance, in a PPP contract, the private partner may agree to a fixed price, with a provision that if tax laws or mandatory standards change after the contract is signed, the contract price or time will be adjusted. This mirrors FIDIC 2017’s approach, which explicitly entitles the contractor to relief for changes in the law of the country. Danish infrastructure contracts, influenced by international practice, routinely include change-in-law clauses. These clauses ensure that contractors are protected in the event of tax increases or new duties imposed by authorities. In certain instances, consortia have been known to secure political risk guarantees for substantial changes.

It is important to note that employers in large-scale projects frequently seek to mitigate risk through insurance or government support rather than passing the burden entirely onto contractors, especially in cases of politically motivated changes, such as the imposition of new taxes. However, contractors involved in infrastructure projects are expected to manage a wide range of risks (eg, ground conditions and weather), and they price those risks accordingly. Recent experience, such as the sudden energy price spikes in 2022, has highlighted the importance of clear contract terms. Several infrastructure contracts had to rely on their extraordinary adjustment clauses to maintain solvency for contractors when fuel and material costs surged unexpectedly. In the future, sponsors of major projects in Denmark will increasingly allocate specific risks, such as tax changes, inflation, and force majeure, through dedicated clauses. This shift indicates a departure from the previous practice of relying solely on the AB 18 default clause.