Construction Comparative Guide

• Law Firm: MARIC STAJCIC & PERKOV
• Subject Matter: Real Estate and Construction, Construction & Planning
• Author: Ms Larisa Mari&#263
• Published date: 24 April 2023

1 Legal framework

1.1 Which legislative and regulatory provisions govern construction projects in your jurisdiction?

A number of laws and bylaws govern construction in Croatia. The crucial law is the Construction Act, which regulates the design, construction, use and maintenance of buildings and the implementation of administrative and other related procedures in order to ensure:

• the protection and arrangement of space in accordance with the regulations governing spatial planning; and
• the basic requirements for buildings and other conditions prescribed for buildings.

Furthermore, the Law on Spatial Planning and Construction Activities:

• regulates the performance of professional tasks and activities involving:
• • spatial planning;
  • design and/or professional supervision of construction;
  • construction;
  • construction project management and testing; and
  • previous research; and
• prescribes:
• • the tasks of the profession;
  • the professional examination and professional training requirements; and
  • conditions for foreign entities that perform tasks and activities of spatial planning and construction.

The material content of the construction agreement (ie, the agreement concluded between the investor and the constructor) is governed by the Obligations Act. This act also includes specific provisions on the liability of all parties involved.

Finally, the Croatian Civil Construction Contract, developed by the Croatian Chamber of Civil Engineers and Croatian Chamber of Employers, reflects special customs in construction. Its provisions apply as long as the parties to the construction agreement have not explicitly excluded their implementation.

1.2 What other legislative and regulatory provisions have relevance for construction projects in your jurisdiction?

From a legal standpoint, construction is an especially complex area, since the activities that are involved in the execution of any construction project fall under several legal fields. These include:

• labour law;
• acts and bylaws regarding safety in the workplace; and
• a number of laws on environmental protection.

The specific circumstances of the location must also be taken into account. Therefore, the legal status of the real estate must be thoroughly checked, including:

• the local urbanisation rules and areas; and
• cultural heritage protection rules.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The Ministry of Physical Planning, Construction and State Assets is the central authority for all matters regarding construction in Croatia. It also issues approvals for the construction of buildings of significant state importance. Necessary approvals for other projects are issued locally, based on the location of the real estate in question; to an extent, they can also be obtained by using the online e-citizen application.

However, the Construction Act and all relevant laws and bylaws regarding construction are enforced by the Construction Inspectorate within the State Inspectorate. Among other things, inspectors are entitled to:

• order the elimination of any and all irregularities during construction;
• suspend construction until further notice; and
• even order the removal of the building.

Other applicable laws are for the major part also enforced by the State Inspectorate (eg, labour inspection, environmental inspection).

1.4 What is the general approach in regulating the construction sector?

Croatia has invested significant efforts in regulating not only the construction sector, but all other legal areas related to construction.

In particular, this includes the legalisation of existing buildings, which ended in mid-2018 and resulted in more than 900,000 applications. Any buildings that did not go through this legalisation procedure are now very likely to be removed. Furthermore, the land registers have been digitalised. The procedure of merging cadastral data with land registry data is still ongoing. Furthermore, laws have been issued to improve safety at construction sites.

Therefore, the construction sector in Croatia is now rather heavily regulated; but is also aligned with the highest international standards.

2 Procurement methods

2.1 What procurement methods are most commonly used in your jurisdiction? Do these vary depending on whether international parties are involved?

The Public Procurement Act sets out the rules on public procurement procedures carried out by a public or sectoral contracting authority, or another entity in the cases determined by the act, with the aim of:

• entering into a contract on the public procurement of goods works or services;
• entering into a framework agreement; or
• implementing a project tender.

Bidders in an open procedure are all interested economic entities. The foundations of public procurement are the principles of the internal market of the European Union, which govern:

• the freedom of movement of goods;
• the freedom of business establishment; and
• the freedom to provide services.

Therefore, all bidders that meet the conditions stipulated in the procurement documentation can compete in public procurement procedures.

Regarding methods, the public contracting authority can freely choose between an open and restricted public procurement procedure.

2.2 What are the advantages and disadvantages of these different methods?

The open procedure is open to anyone; it thus allows transparency in competition and may result in a variety of offers. However, the number of offers and therefore the documentation that must be reviewed can be rather time consuming.

The restricted procedure is used more rarely than the open public procurement procedure. It is not a procedure in which any interested public entity can request to participate; rather, only those economic entities invited by the contracting authority can submit a bid. This procedure lasts longer than the open procedure and involves several stages, during which competitors or bidders can appeal.

2.3 What other factors may influence the choice of procurement method?

Other procurement methods include the following:

• Competitive procedure with negotiations: This is a rarely used method whereby the contracting authority contracts with a subject of its own choice because:
• • its needs cannot be met without adapting readily available solutions, or include the design of innovative solutions; or
  • prior negotiations are not possible due to specific circumstances related to the nature, complexity or legal and financial conditions or risks associated with them.
• Competitive dialogue: Any interested economic entity can request to participate in this procedure, whereby the contracting authority conducts a dialogue with selected competitors in order to develop one or more suitable solutions that will meet its requirements, based on which the selected competitors will be invited to submit bids. The procedure is applied in cases where public contracting authorities cannot determine exactly how their needs will be met or cannot assess which solutions the market can offer.
• Partnerships for innovation: This procedure is used when it is determined that there are no suitable goods, services or works on the market that can meet the needs of the client.
• Negotiation procedures without prior announcement of invitation to tender: These are used only if certain legal preconditions are met, mostly where no suitable offer in an open or limited procedure or no request for participation has been submitted.

3 Project structures

3.1 How are construction projects typically structured in your jurisdiction? Does this vary depending on whether international parties are involved?

There is a wide variety of project types and structures. The parties to a construction agreement are free to negotiate the terms according to their needs and circumstances. The involvement of international parties is not grounds for the inclusion of any specific rules - with the exception of possible deviations regarding collateral.

Generally, the employer can either:

• appoint one (or more) parties for a certain part of the project; or
• more commonly, enter into a turnkey contract, meaning that the appointed party executes the project in its entirety.

In any case, constructors usually use a variety of subcontractors. The contractor remains liable to the employer for any faults caused by the subcontractor.

A specific rule in case of turnkey contract is that the agreed price must:

• include the value of all unforeseen works and surplus works and
• exclude the impact of insufficiencies in completed works on the agreed price, assuming that there has been no change in the scope of the contracted works based on the agreement of the contracting parties or for reasons for which the client is responsible.

3.2 What are the advantages and disadvantages of these different structures?

As pointed out in question 3.1, liability in the case of a turnkey contract may prove to be a challenge. The agreed price will remain the same even if surplus works must be undertaken. However, the agreed price will also remain the same if the works prove to be done insufficiently.

This is why it may be preferable not to exclude the application of provisions of the Croatian Civil Construction Contract. These provide that the term 'turnkey' does not exclude changes to the agreed price due to:

• a change in circumstances;
• out-of-budget works that are not provided for in the graphic parts of the project; and/or
• changes to the technical documentation requested by the client.

One might argue that turnkey contracts are more favourable as one (albeit sometimes complex and extensive) legal document governs the majority, if not all, of the project. This may also be seen as a more practical approach to certain issues such as due diligence (eg, risks connected to supply chain liability can be reduced).

For the employer, a turnkey contract may also be more favourable from an organisational perspective. However, the employer is free to...