What is a Contractual Penalty?
A contractual penalty (German: Vertragsstrafe, also Konventionalstrafe or Pönale) is a contractually agreed monetary payment that the contractor must make to the client for culpable breach of a contractual obligation. In public procurement, contractual penalties are primarily used to secure completion and milestone deadlines.
Legal Framework
German Civil Code (BGB):
- §§ 339-345 BGB: General provisions on contractual penalties
- § 343 BGB: Judicial reduction if disproportionate
VOB/B:
- § 11 VOB/B: Contractual penalties for construction contracts
- § 11(2) VOB/B: Maximum 0.3% of contract value per working day
- § 11(3) VOB/B: Overall cap of 5% of contract value
Types
- Delay penalty (most common): Due upon culpable deadline overrun, calculated per day of delay
- Milestone penalties: Securing intermediate project milestones
- Penalties for special obligations: Confidentiality, minimum wage violations, unauthorized subcontractors
Limits
| Rule | Limit | Legal Basis |
|---|---|---|
| VOB/B per day | Max. 0.3% per working day | § 11(2) VOB/B |
| VOB/B total | Max. 5% of contract value | § 11(3) VOB/B |
| BGB reduction | Judicial reduction if disproportionate | § 343 BGB |
| Standard terms | Void if unreasonably disadvantageous | § 307 BGB |
Prerequisites for Penalty
- Valid contractual agreement
- Culpable conduct by the contractor
- No contributory fault by the client
- Reservation at acceptance (§ 341(3) BGB)
Practical Example
Public authority contracts a kindergarten construction for €2,000,000 net with 0.2% per working day penalty, max 5%. For 15 working days delay: 0.2% x €2,000,000 x 15 = €60,000 (below the €100,000 cap).
Risk Management for Bidders
- Check if the penalty is reasonable (max. 0.3% per day under VOB)
- Verify an overall cap exists (max. 5% under VOB)
- Assess whether deadlines are realistic
- Calculate maximum penalty into your bid
- Document any obstructions caused by the client (§ 6 VOB/B)
Invalidity
A penalty clause may be void if it exceeds the 5% cap, the daily rate exceeds 0.3% (VOB contracts), the clause is non-transparent, or there is a disproportionate relationship to expected damages.
Patterno hilft
Patterno analyzes contract terms in tenders and highlights relevant penalty provisions. This allows you to assess risks before submitting your bid and adjust your calculation accordingly.