REALWorld Law

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The Croatian Obligations Act (Zakon o obveznim odnosima, Official Gazette Nos. 35/05, 41/08, 125/11 and 78/15) regulates contracts for the carrying out of building works (building contracts) as well as contracts for the design of building works, which are in general considered to be service agreements. In addition, the code of practice in construction, which was adopted in 1977, is still applicable as a customary law source and is, in accordance with the general principles of the Croatian Obligations Act, applicable if the contracting parties (where both are commercial entities) do not exclude it or, where private individuals contract, where the parties agree that it will apply. However, due to technical and contractual developments since 1977, this code of practice lost its importance and a new code is being prepared to take into consideration current legislation and practice.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

In general, for construction as well as for the refurbishment of an existing building, a building permit (and, depending on the size of the construction, a location permit), must be obtained by the investor before a contractor begins the construction works. As regards the licensing of the contractor, a licensed building contractor is not required for a project with less than 400 sqm of gross building area or in the case of works where the value does not exceed EUR 150,000. For larger construction works, the contractor is required to be licensed, in one of seven different categories (A to G), depending on the total value of works. With respect to works on buildings for public use the contractor must be licensed in Category A.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Health and safety on construction sites is regulated by the provisions of the Act on Safety at Work (Official Gazette No. 71/14, 118/14 and 154/14) and the Act on Construction (Official Gazette No. 153/13 and 20/17). The Act on Construction also separately regulates the use after completion of the construction.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The Regulation on the Evaluation of the Impact of an Intervention on the Environment regulates the manner in which a study of the impact on the environment has to be made as well as the art of evaluation and final assessment of the envisaged intervention. As of 1 April 2010, all new buildings are required to have an energy certificate. Existing (old) buildings which are sold or leased have to be certified from 1 July 2013.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

It has recently become more common to enter into specific development agreements with public authorities to facilitate, for example, the provision of access roads.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

There are no mandatory terms or conditions to contracts for the design or carrying out of building works in Croatia; however, the object and the price of the construction must be defined.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

There is no national body or organization which produces standard form contracts for the construction and engineering sector. However, the General Practice (Usages) in Construction which were adopted in 1977 are still applicable as customary law source. The form of contract depends also on whether it is concluded with a public body (where specific regulation on either public procurement or public-private partnerships applies) or between private persons, where often the FIDIC model agreement is used.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Employer/client

This is the party procuring the work (typically, a land owner or land developer).

Project designer

The project is made by the project designer, who may not be an employee of the contractor. If the main project provides for project supervision, the investor has to entrust the project designer with the project supervision of the works.

Contractor

A main building contractor is engaged by the employer to carry out and complete the works. This contractor will usually, in turn, engage sub-contractors to carry out and complete separate parts of the works. Contractors may also take responsibility for the design of all or part of the works they are to execute depending on the procurement method and/or contract used.

Supervising engineer

The investor has by law to appoint a supervising engineer who shall supervise the works on behalf of the investor. The supervising engineer has to be either an authorized architect or an authorized engineer.

Reviser

The main project has to be revised by a reviser, who may not be a person participating in the development of the main project.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The contractor is responsible for the construction of the works, whereas the designer is responsible for deficiencies in design and the supervising engineer for deficiencies in supervision. In general, a party that is unable to perform its obligations because of an unforeseeable event outside its control (ie force majeure) is not liable for the consequences of such an event. Additionally, construction contracts usually contain a provision for the exclusion of liability for contractors in the case of force majeure.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Public procurement is regulated by the Public Procurement Act (Official Gazette 120/16), whereas public-private partnerships (PPPs) are governed by the Act on Public-Private Partnerships (Official Gazette No. 78/12, 152/14).

PPP has been applied in Croatia since its independence and has had a significant role in the development of infrastructure projects and providing public services of a higher quality. In the beginning, the concession model of PPP was mostly applied for construction of roads and communal infrastructure. In the last few years, more complex PPP models have been implemented, especially in relation to education and science, technical-development centres, environmental protection, housing construction, sports and urban infrastructure, public administration buildings, development of healthcare and social care.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

The Croatian Obligations Act (Zakon o obveznim odnosima, Official Gazette Nos. 35/05, 41/08, 125/11 and 78/15) regulates 'turnkey contracts' where the agreed price includes all unforeseeable and surplus works. The deficiency of works does not have an impact on the agreed price, unless the change of the scope of works has either been agreed by the contractual parties or has been caused by the client.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Usually all-risk insurance (including additional risks such as liability towards third persons and contractual liability for works completion within a time limit) is required under a construction contract.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Developers usually ask for a bank guarantee and/or a corporate guarantee from the contractor’s parent company.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Methods of payment vary according to the works. The three main types of payment are:

1. Lump sum: A pre-agreed sum that the contractor/sub-contractor will be paid to carry out either a stage of or the whole of the works that are required under the contract (subject to various provisions, including variations for which the contractor may receive additional monies)
2. Measurement: The work is measured and valued according to a schedule or formula
3. Advance payment: An advance payment is made for the costs of the labour and/or materials used

Payment is usually made after the supervising engineer (appointed by the investor) has certified the completed works. The inspection and certification of completed works can be made on a periodic basis (usually monthly) or a milestone basis (at pre-agreed specific milestones or stages).

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

It is possible to agree upon a fixed completion deadline. Usually the contractual parties agree upon a contractual penalty for the delay on a per-day basis.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Contractual mechanisms for dealing with variations to the works vary depending on why the variation is requested:

• Employer-led changes: Under most standard form contracts, the employer has the right to request variations to the works, for which the contractor is entitled to additional time and money. The contractor is also entitled to raise reasonable objections to material changes
• Contractor-driven changes: Where variations are necessary due to the contractor's error, delay or default, the contractor is not usually entitled to additional time or money under the contract. He is also liable for any delays caused to the project by these variations and where the variation means that the work has not been carried out in accordance with the contract

In case of 'turnkey contracts', the agreed price includes all unforeseeable and surplus works, but the deficiency of works does not have an impact on the agreed price, unless the change of the scope of works has either been agreed by the contractual parties or has been caused by the client.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Although the completion of works is not defined by law, construction of a building is considered to be completed if the building is ready for use. In accordance with the Act on Construction (Official Gazette Nos. 153/13 and 20/17), a building may be used only upon the issue of a Usage Permit, which is issued by the competent zoning and construction authority upon the performance of a technical inspection.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Commercial courts are competent for construction disputes between tradesmen (ie companies within their scope of business), whereas municipal courts are competent for other construction disputes. There are no further specific courts for construction disputes.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

It is common to agree on the competence of arbitration for construction contracts at it is far more time efficient and expert (provided an expert arbitrator has been appointed) than the regular courts.

Last modified 22 Mar 2024

To what extent would a person who procures or carries out building works have liability for any physical damage or economic loss suffered by the end user(s) of the completed development? Can such liability be excluded in any way?

Although it is not required by law (and must not be accepted by the parties as a prerequisite to regular proceedings), mediation has been introduced in almost all commercial courts in Croatia as an alternative dispute resolution procedure.

Last modified 22 Mar 2024