Construction contract

Remuneration claim and refusal of payment: when payment may be withheld

When remuneration falls due under section 1170 ABGB, when a client may withhold payment and where the limits of refusing payment lie.

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5 June 2026 · Mag. Bernhard Brandauer, Rechtsanwalt

The site is finished, the final invoice is on the table and then the real dispute begins: the contractor wants its remuneration, the client withholds payment because, from its point of view, something is not right. Such conflicts are among the most frequent disputes in construction and affect both sides alike.

This article explains when the remuneration falls due, on what conditions a client may withhold payment and where the limits of refusal lie. The basis is the law of works contracts in sections 1165 to 1171 of the Austrian Civil Code (ABGB), together with the general right of retention in section 1052 ABGB.

Those who know the legal ground rules avoid costly mistakes. The contractor risks its remuneration where it breaches the duty to warn, the client risks its own default where it withholds too much. From a lawyer’s perspective a sober assessment is worthwhile before the conflict escalates to court.

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01 Question 1

Are you on the side of the contractor or the client?

The remuneration is in principle due only on completion of the work under sec. 1170 ABGB. Agreed part and instalment payments fall due according to building progress.

All paths at a glance

Overview of all answers.

Without a verifiable final invoice the remuneration is generally not yet due.

The remuneration is in principle due on completion of the work under sec. 1170 ABGB, agreed instalment payments according to the respective building progress. In practice the final payment requires a verifiable final invoice and the expiry of a reasonable review period. As long as such an account is missing, the client can often withhold payment on good grounds.

Clarify whether the work is completed, whether a verifiable invoice exists and which period is reasonable for the review. That determines when default begins.

Where the work is free of defects or only minor, the remuneration must be paid.

Where the work is free of defects or only minor, a complete refusal of payment carries the risk of default. The right of retention under sec. 1052 ABGB applies only in proportion to the defect. Anyone who fails to pay without a sound reason risks default interest and the costs of proceedings.

Consider whether a minor defect at most justifies a small price reduction, and pay the undisputed part. In this way you avoid unnecessary default.

A reasonable part may be withheld until the repair is carried out.

Where the work is defective you may withhold payment in a reasonable amount under sec. 1052 ABGB until the contractor repairs it. The amount withheld must bear a relation to the defect and the likely cost of repair. Withholding an excessive amount can itself lead to default and breach the prohibition of abuse of rights.

Give written notice of the defect, set a deadline for repair and withhold only a reasonable part. The undisputed remainder should be paid.

A breached duty to inspect and warn can jeopardise the remuneration claim.

The contractor is subject to a duty to inspect and warn under sec. 1168a ABGB. If it fails to warn against obviously unsuitable material or an obviously incorrect instruction by the client, it is liable for the consequences and may lose the remuneration in whole or in part. The warning must be clear and given in good time.

Have it examined whether a warning was owed, whether it was omitted and what that means for the claim and for your counterclaims. The evidence is often decisive here.

All recommendations at a glance

Without a verifiable final invoice the remuneration is generally not yet due.

Clarify whether the work is completed, whether a verifiable invoice exists and which period is reasonable for the review. That determines when default begins.

Where the work is free of defects or only minor, the remuneration must be paid.

Consider whether a minor defect at most justifies a small price reduction, and pay the undisputed part. In this way you avoid unnecessary default.

A reasonable part may be withheld until the repair is carried out.

Give written notice of the defect, set a deadline for repair and withhold only a reasonable part. The undisputed remainder should be paid.

A breached duty to inspect and warn can jeopardise the remuneration claim.

Have it examined whether a warning was owed, whether it was omitted and what that means for the claim and for your counterclaims. The evidence is often decisive here.

When the remuneration falls due

Under section 1170 ABGB the remuneration is in principle payable only after completion of the work. The client owes advance performance only where this has been agreed. In construction the contractor’s duty to perform in advance is therefore the statutory starting point: first the work is built, then it is paid for.

In practice part and instalment payments according to building progress are widespread and permissible where they have been agreed. They spread the advance-performance risk and secure the contractor’s liquidity during the building phase. Which instalment falls due when then follows from the payment plan in the contract.

The final payment regularly requires a verifiable final invoice. Only once the client has been able to review the invoice within a reasonable period does it fall due. As long as a verifiable account is missing or the work is not completed, the client can withhold payment on good grounds.

Refusal of payment where the work is defective

Where the work is defective, section 1052 ABGB gives the client a right to refuse and to withhold payment. It does not have to pay the remuneration in full as long as the contractor has not properly rendered its performance. This leverage is intended to prompt the contractor to repair.

What matters is proportionality. The amount withheld must bear a sensible relation to the defect and the likely cost of repair. Anyone who withholds the entire remuneration over a small defect overstretches the right of retention and may fall into default itself. The prohibition of abuse of rights sets a clear limit here.

In practice a tiered approach is advisable: give written notice of the defect, set a reasonable deadline for repair, pay the undisputed part of the remuneration and withhold only a proportionate part. How to assert defects with legal effect is explored in our article on construction defects after handover.

The contractor’s duty to inspect and warn

The contractor is subject to a duty to inspect and warn under section 1168a ABGB. If it recognises that material supplied by the client is obviously unsuitable or that an instruction is obviously incorrect, it must warn the client clearly and in good time. If the warning is omitted, it is liable for the resulting consequences.

This liability applies even where the contractor is not at fault for the actual error. Anyone who stays silent despite recognisable concerns may lose the remuneration in whole or in part and be liable for damage. The duty to warn is therefore not a mere formality but often the pivotal point of a remuneration dispute.

For the client this means: anyone who insists on a particular execution should take a contractor’s warning seriously and document it. For the contractor the rule is to record a warning given in a provable form, ideally in writing. The evidence often decides the outcome in a dispute.

Where performance fails on the client’s side

Where performance of the work is omitted owing to circumstances on the client’s side, the contractor retains its claim to the remuneration under section 1168 ABGB. If the client, for example, does not call off the performance or prevents the work, it must in principle still pay.

However, credit must be given for what the contractor has saved as a result of the omission, or has earned through the alternative use of its labour, or has deliberately failed to earn. These saved expenses are therefore deducted from the agreed fee. The contractor is to keep the remuneration but not to earn twice.

Lump-sum price and unit price

How the remuneration is calculated

The account depends on the agreed price model. Lump-sum price and unit price lead to different rights regarding additional work and quantities.

Comparison of lump-sum price and unit price with account and risk allocation
Feature	Lump-sum price	Unit price
Account Fixed amount for the agreed scope of services	Actual quantities multiplied by the agreed unit price
Quantity risk Lies in principle with the contractor	Lies in principle with the client
Additional work Only paid separately where it goes beyond the agreed scope	Captured through the quantities actually rendered
Point of dispute The reach of the agreed scope of services	Measurement and proof of the actual quantities

Which model applies follows from the contract. A clear scope of services prevents disputes over additional work and quantities.

A common mistake: anyone who withholds the entire remuneration over a small defect may fall into default itself and is then liable for default interest. Pay the undisputed part and withhold only a reasonable amount. Where the correct amount is in doubt, booking an initial consultation (EUR 72) is worthwhile before the dispute escalates.

What both sides should do now

As a contractor you should issue a verifiable final invoice, document the state of performance and record any warnings given in writing. If payment is not made despite the claim falling due, a reminder with a deadline is the first step before an action comes into consideration.

As a client you should give notice of defects quickly and verifiably, set a reasonable deadline for repair and pay the undisputed part of the remuneration. Withhold only a proportionate amount and document the likely cost of repair.

In both roles early legal advice is worthwhile, because the due date, the scale of the defect and the proportionality of the retention can often only be assessed together. How to avoid disputes in advance is shown in our article on the construction contract before signing.

Frequently asked questions

Remuneration and refusal of payment.

When does the remuneration fall due? +

Under section 1170 ABGB the remuneration is in principle due only after completion of the work. Agreed part and instalment payments fall due according to the respective building progress. In practice the final payment requires a verifiable final invoice and the expiry of a reasonable review period.

As a client, may I refuse the entire payment because of a defect? +

Only by way of exception. Under section 1052 ABGB you may withhold a reasonable part where the work is defective. The amount withheld must bear a relation to the defect and the cost of repair. Withholding an excessive amount can breach the prohibition of abuse of rights and put you into default yourself.

Can the contractor lose its remuneration even though it has built? +

Yes, that is possible. If the contractor breaches the duty to inspect and warn under section 1168a ABGB by failing to warn against obviously unsuitable material or an obviously incorrect instruction, it may lose the remuneration in whole or in part and is liable for the consequences, even without fault of its own for the error.

Defects, a remuneration dispute, looming litigation?

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Remuneration claim and refusal of payment: when payment may be withheld

Remuneration outstanding, where do you stand and what is the next step?

Are you on the side of the contractor or the client?

Overview of all answers.

Without a verifiable final invoice the remuneration is generally not yet due.

Where the work is free of defects or only minor, the remuneration must be paid.

A reasonable part may be withheld until the repair is carried out.

A breached duty to inspect and warn can jeopardise the remuneration claim.

When the remuneration falls due

Refusal of payment where the work is defective

The contractor’s duty to inspect and warn

Where performance fails on the client’s side

How the remuneration is calculated

What both sides should do now

Remuneration and refusal of payment.

Related topics around remuneration and the construction contract

Construction contract and remuneration

Reviewing the construction contract before signing

Construction defects after handover

Cost risk and settlement in litigation

Defects, a remuneration dispute, looming litigation?

A direct line to the firm.