Serbia: Construction

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This country-specific Q&A provides an overview to construction law in Serbia.

It will cover termination requirements and obligations, permits and licence, procurement, financing and security, and disputes as well as insight and opinion on challenges and opportunities.

This Q&A is part of the global guide to Construction. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/construction/

  1. Is your jurisdiction a common law or civil law jurisdiction?

    Our jurisdiction is a civil law jurisdiction.

  2. What are the key statutory/legislative obligations relevant to construction and engineering projects?

    The following laws represent key statutory/legislative obligations relevant to construction and engineering projects:

    • Law on Contracts and Tort;
    • Law on Planning and Construction;
    • Law on Occupational Safety and Health;
    • Law on Fire Protection;
    • Law on Efficient Use of Energy;
    • Law on Environmental Protection;
    • Law on the Foundations of Property Law Relations;
    • Law on Transfer of Immovable Property;
    • Labour Law.
  3. Are there any specific requirements that parties should be aware of in relation to: (a) Health and safety; (b) Environmental; (c) Planning; (d) Employment; and (e) Anti-corruption and bribery.

    (a) Health and safety;
    Employer is obliged to provide healthy and safe work environment to the employees, i.e. to the engaged personnel. Rights, obligations and liabilities in regard to health and safety at workplace have to be regulated either by general or individual act of the employer.

    The main law that regulates the respective area is Law on safety and health at workplace. Aside from the said law, in terms of health and safety at construction sites, Republic of Serbia ratified the ILO Convention No. 167 on Safety and Health in Construction which provides general rules that have to be followed by the employers who engages personnel for the work on construction sites.

    Also, two additional acts regulate matter of safety and health at construction sites - Regulation on safety and health at workplace on temporary and movable construction sites and Rulebook on safety at work during conducting construction works.

    One of the main duties stipulated by the aforementioned bylaws is that the principle constructor is obliged to appoint coordinators for health and safety for the phase of project development and for the phase of conducting the construction works. Obligation of the coordinator for health and safety for the phase of project development is to prepare the Prevention Measures Plan. Once the construction works begin, the coordinator for health and safety for the phase of conducting the construction work shall oversee whether the Plan is being followed by all the contractors and whether it any amendments should be made or not. Therefore, aside the persons in charge for health and safety at workplace/construction site, which shall be appointed by each employer, principle constructor is responsible to appoint the aforementioned coordinators. Number of coordinators depends on the number of subcontractors, i.e. it should be proportional. If the aforementioned coordinators are not appointed, principle constructor could be liable for misdemeanour, i.e. penalized with a pecuniary fine of up to RSD 1.000.000.

    (b) Environmental;
    The Law on Environmental Protection prescribes the general obligations on environmental protection, as well as the special obligations which must be fulfilled regarding the environmental issues before/during and after finishing of the construction.

    The investors must comply with the general rules regarding the environmental protection, but in some cases, depending on the type of the future facility and/or the location, the investors might be obliged to prepare the Environmental Impact Assessment (EIA). The contents of the Environmental Impact Assessment always depend on the type of the facility and location and, prior to preparing the EIA the competent state body renders special decision on the contents of the future EIA for the specific project. During preparation of the EIA the investors shall have to apply the sectorial laws (Law on Water, Law on Forests, Law on Protection of Nature, Law on Agriculture Land) and communicate with different authorities in order to finalize the EIA in accordance with legal requirements. Therefore the preparation of EIA may be time consuming.

    For some projects and in the process of preparation and enactment of specific spatial planning documents the preparation of the Strategic Environmental Study is required.

    (c) Planning;
    Technical documentation for the construction of facilities is to be prepared by companies, respectively other legal person / entrepreneurs that are registered in the register of business entities. Technical documentation for the construction of facilities, for which the building permit is issued by the ministry in charge of construction matters, i.e. a competent authority of the autonomous province, may be produced by a company, i.e. other legal person registered in the appropriate register for production of technical documentation for that type of facilities which employs persons holding a license of a responsible designer who have appropriate professional results in the production of technical documentation for that type and purpose of the facility.

    Such responsible designers are natural persons with a college degree of the appropriate profession, i.e. course, in the academic studies of the second degree (master academic studies, master of professional studies, specialist academic studies), i.e. in the basic academic studies lasting at least five years and holding a license to design, issued in accordance with the Law on Planning and Construction. The licenses of responsible designers may be obtained by a natural person holding a college degree of the appropriate profession, i.e. course, with a passed professional exam and at least three years of work experience with professional results in preparing technical documentation and with references from at least two responsible designers, or the Engineering Chamber of the Republic of Serbia.

    The investor appoints a head designer who is responsible for compliance of the extract from design with the information from the design intended for the building permit, and who also confirms, with his signature and seal of personal license, that all individual parts of the design are harmonized. The head designer has to fulfil the requirements for the responsible designers, as pointed out herein above.

    (d) Employment;
    Labour law represents the basic law that regulates employment and labour relations in Republic of Serbia. Employers are obliged to provide the employees with the minimal rights granted by the respective law. Otherwise, they could be responsible for misdemeanour.

    Labour law regulates rights and obligations of both employers and employees and should be applied regardless of the business activity of the employer. Therefore, in terms of employment and labour relations, there are no specific rules that should be applied to the personnel engaged on the construction sites.

    Having in mind the aforementioned, depending on the basis of engagement, engaged personnel has to be provided with adequate receivables, rests during work, as well as daily, weekly rest and annual leave, etc.

    Employers can engage foreigners for conducting construction work in Republic of Serbia, but only upon conducting the procedure of obtaining mandatory residence and work permits (except in cases when respective permits are not necessary).

    (e) Anti-corruption and bribery;
    The anti-corruption and bribery legal framework regarding construction does not exist in Serbia.

    However, since every real estate has to be inscribed in the Real Estate Cadasters, certain practices may occur regarding the anti-corruption and bribery regulation. The Real Estate Cadastres are state bodies whose employees represent state servants and therefore official persons which are obliged to comply with the anti-corruption and bribery rules.

    The main laws that regulate the respective area are Criminal Law and Law on the Anti-corruption Agency. Aside from the said laws, in terms of anti-corruption and bribery, Republic of Serbia ratified the Civil Correction Convention on Corruption adopted of 4 November 1999 in Strasbourg, The Criminal Law Convention on Corruption adopted on 27 January 1999 in Strasbourg and The United Nations Convention against Corruption, adopted in New York on 31 October 2003.

    Criminal law regulates the receiving of bribery by official person, as well as giving of bribery to the official person as a criminal offence, which can lead to a prison sentence from 2 to 12 years of prison sentence for the official person receiving a bribe and a prison sentence from 6 months to 5 years in case of giving the bribe.

    The Law on the Anti-corruption Agency prescribes that the official person must not receive a gift in connection with performing a public function, except for a protocol gift, which cannot be money and securities. An official person who has been offered a gift which he/she is not allowed to accept shall reject such offer and inform the one offering the gift that the gift, if accepted, will become public property. If the official person could not reject the gift, he/she shall hand over the gift to the body competent to manage property in public ownership and submit a written report. Otherwise, the official person could be responsible for misdemeanour with a fine ranging from RSD 50,000 to RSD 150,000. Additionally, the security measure of prohibiting the responsible person from performing specific activities may be ordered against an official person for a period of one year.

  4. What permits/licences and other documents do parties need before starting work, during work and after completion? Are there any penalties for non-compliance?

    In order to start working/building, an investor must obtain Building Permit. Building Permit shall be issued to the Investor, by competitive authority, if the following conditions are met: (i) investor has the appropriate rights on the land (ii) design for a building permit is submitted (iii) administrative fees are paid;

    Building is done based upon a Building Permit and technical documentation.

    Technical documentation is drafted as: (i) general design; (ii) conceptual solution; (iii) conceptual design; (iv) design for a building permit; (v) project execution plan; (vi) As-built design of a constructed facility. Technical documentation can only be drafted by licenced engineers (civil engineers and architects). Such Licences are issued by Serbian Chamber of Engineers. Foreigners are authorised to draft technical documentation, only if there is reciprocity.

    Design for Building Permit is subject to a technical control.

    Documents necessary for the issuance of Building Permit are submitted electronically, and the Building Permit is issued in the same manner.

    After the Building Permit is submitted, Investor must notify the authority that issued Building Permit on the start of the construction.

    The Investor appoints a responsible contractor who is to manage the construction, and provides expert supervision during Construction. After the Construction is completed, Occupancy Permit shall be issued, if the building is suitable for use. Suitability is determined by technical inspection. Technical inspection can only be conducted by licenced and authorised person (natural or legal entity), which must be inscribed in the appropriate register.

    The Investor must be compliant to all Law provisions. Law on planning and construction prescribes penalties for both economic offenses and misdemeanours, with the penalty range between 100.000,00 to 3.000.000,00 rsd.

    Also, if the construction is not compliant, construction inspector is authorised to order termination, suspension of the works, or removal of the Building.

  5. Is tort law or a law of extra contractual obligations recognised in your jurisdiction?

    Only the Serbian Law on Contracts and Torts is recognised in our jurisdiction.

  6. Who are the typical parties to a construction and engineering project?

    The typical parties to a construction and engineering project are the employer and the contractor, which are in most cases diverse legal entities.

  7. What are the most popular methods of procurement?

    Only when the application of the Law on Public Procurement is mandatory, in such cases the methods envisaged by the same law are to be used. The same consist of the following Public procurement methods/procedures:

    • Open procedure;
    • Restrictive procedure;
    • Qualifying procedure;
    • Negotiating procedure with publishing an invitation to place bids;
    • Negotiating procedure without publishing an invitation to place bids;
    • Competitive dialogue;
    • Design contest;
    • Low-value public procurement procedure.
  8. What are the most popular standard forms of contract? Do parties commonly amend these standard forms?

    There are no specific popular standard forms of contracts that are used locally. It is upon the free will of contractual parties to agree upon the relevant aspects of their business relationship when it comes to construction and building industry. Even when any kinds of templates are used for contracts, the parties do tend to amend them rather often. However, during the last decades the use of diverse FIDIC contracts has become rather widespread, at least in larger construction works.

  9. Are there any restrictions or legislative regimes affecting procurement?

    Save for public procurements, which are to be conducted based on the Law on Public Procurement of the Republic of Serbia, there are no restrictions affecting procurements specifically. The parties that are obliged to apply the Law on Public Procurement are governmental bodies of the Republic of Serbia, bodies of the autonomous provinces of the same republic, as well as local self-government bodies – that are all referred as to contracting authorities. Amongst other reasons, any public procurement contracts, which were concluded without having conducted the public procurement procedure, which the contracting authority has been obliged to conduct according to the provisions of the Law on Public Procurement, as well as if the same contracts are concluded contrary to the provisions of the said law that are governing the prevention of corruption and conflict of interest, shall be null and void.

  10. Do parties typically engage consultants? What forms are used?

    Save for bigger construction works, the parties still tend to save money by not engaging consultants.

  11. Is subcontracting permitted?

    Subcontracting is permitted. However, only when and if the Law on Public Procurement is to be applied, in such case is the contracting authority obliged to state already within the tender documents whether the public procurement will allow that the bidder entrusts the execution of such public procurement to a subcontractor. While doing that, it has to be stated exactly which percentage of total procurement value may be entrusted to the subcontractor. However, by the virtue of the same law that percentage may not be larger than 50%.

  12. How are projects typically financed?

    In most cases are diverse forms of credit facilities used that are granted by banks. Only for the construction of flats/apartments there is only during the recent years also project financing available.

  13. What kind of security is available for employers, e.g. performance bonds, advance payment bonds, parent company guarantees? How long are these typically held for?

    There is a wide range of securities that are available for employers, amongst which are mainly performance bonds, advance payment bonds, all mainly in from of bank guarantees. The use of parent company guarantees is not that common. The time for which such guarantees/bonds are held for depends on the purpose thereof. Advance payment bonds until the repayment of the advance, plus some additional number of days on top of it, e.g. 15 or 30 days. Performance bonds during the time needed for the completion of construction works, again plus some additional adequate number of days on top it. The latter is usually substituted by a guarantee for the good quality of the conducted works that is issued upon the completion of works, which lasts as long as the agreed upon warranty period, which is in practice not shorter than 24 months.

  14. Is there any specific legislation relating to payment in the industry?

    There is no specific legislation relating especially to payments in the construction industry. Nevertheless, there is the general Law on deadlines for settlement of pecuniary obligations in commercial transactions, according to which the longest deadline for the payments amongst legal entities within the Republic of Serbia are 60 days, respectively 45 days when a publicly owned entity is the debtor. However, hardly any one respects that law in practice.

  15. Are pay-when-paid clauses (i.e clauses permitting payment to be made by a contractor only when it has been paid by the employer) permitted? Are they commonly used?

    The use of pay-when-paid clauses is not against the law, but hardly anyone succeeds to agree upon the implementation of such clauses. Still, even if such clauses are not agreed upon, it does happen often in practice that employers do behave in such way, as if such clauses were agreed upon.

  16. Do your contracts contain retention provisions and, if so, how do they operate?

    Some contracts do contain retention provisions, which were originally set by the old Special Rules on Construction, on the Retention of the portions of the price. Unlike the regular current laws, such rules are to be applied only when and if the contractual parties do agree to apply them.

  17. Do contracts commonly contain delay liquidated damages provisions and are these upheld by the courts?

    Contracts do contain provisions that provide for indemnity caused due to delays. Such provisions must be in line with the thereto applicable Law on Contracts and Tort, by which the following is prescribed: A creditor and a debtor may stipulate that the debtor shall pay to the creditor a specific sum or supply him with some other property benefit, should he fail to perform his obli¬gation, or delay in performing it (liquidated damages). Unless something else results from contract, liqui¬dated damages shall be considered as stipulated for the case of a debtor becoming late in performance. However, liquidated damages shall not be stipulated in rela¬tion to monetary obligations. Contracting parties may determine the amount of liq¬uidated damages as they please, either in form of a lump sum or as a percentage, or for each day of delay, or in some other way. Such liquidated damages have to be stipulated in the form prescribed for the contract from which the obligation envisaged by it arises. When liquidated damages have been stipulated for the breach of obligation, the creditor may request either the performance of obligation or the payment of such liquidated damages. The creditor shall be entitled to request the liquidated damages even should their amount exceed that of the loss sustained by him, as well as if he does not sustain any loss at all. Should the loss sustained by the creditor be higher than the amount of liquidated damages, he shall be entitled to demand the difference to cover the entire loss.

  18. Are the parties able to exclude or limit liability?

    The parties may exclude or limit liability in line with the thereto applicable Law on Contracts and Tort. The said law sets in that respect the following basic rules: Debtor’s liability for intention or gross negligence may not be precluded in advance by contract. At the request by an interested contracting party, the court may, however, also annul the contractual provision on the exemption of liability for simple negligence, should such agreement be the result of the monopoly position of the debtor or, otherwise, of unequal mutual positions of the contracting parties. A provision of a contract shall be valid by which the highest amount of compensation is determined, unless such amount is in obvious disproportion to the damage and unless the law provides otherwise for the specific case. In case of limiting the amount of compensation, the creditor shall be entitled to full redress should the impossibility of performance of obligation be caused by willful misconduct or gross negligence of the debtor.

  19. Are there any restrictions on termination? Can parties terminate for convenience? Force majeure?

    There are no special restrictions on termination that are unknown to the rules used in the comparative legal systems. Still, a most basic rule in respect to termination in line with Law on Contracts and Tort is the following one: With bilateral contracts, if one party fails to perform its obligation, the other party may request performance of the obligation - unless something else has been determined - or, under the terms specified in relevant articles of the Law on Contracts and Tort, may repudiate the contract by simple statement, should rescission of contract be not effected on the grounds of law, and in any case, such party shall be entitled to damages.

    The latter provides a hurdle to the otherwise allowed termination for convenience, as the opposing party is entitled to damages also when a contract is terminated without proper grounds, i.e. just based on the convenience of just one contractual party.

    The terms specified in relevant articles of the Law on Contracts and Tort on termination do cover mainly the following aspects thereof:

    • Rights of one party after the other party fails to perform its obligation;
    • Rights where performance within a time limit is an essential element of
      a contract;
    • Rights where performance within a time limit is not an essential element of
      a contract;
    • Repudiation of a contract without leaving a subsequent time limit;
    • Repudiation of a contract prior to expira¬tion of the time limit;
    • Repudiation of a contract with consecutive obligations.

    Furthermore, after a contract is repudiated, both parties shall be released from their obligations, except the obligation of compensating for subsequent loss. A party performing a contract entirely or partially shall be entitled to restitution of that what he has given. Should both parties be entitled to claim restitution of what has been given, mutual restitution shall be liquidated under the rules of performance of bilateral contracts. Each party shall owe to the other compensation for benefits enjoyed for the time being from that what he is obliged to restitute, that is to compensate. A party paying back money shall be obliged to pay interest on arrears from the day of receiving the payment.

  20. What rights are commonly granted to third parties (e.g. funders, purchasers, renters) and, if so, how is this achieved?

    In practice no rights are granted to third parties. Thus, only when an initially as third party marked party becomes a regular party to a contract, only in such cases will its rights be respected by the other parties thereto.

  21. Do contracts typically contain strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims? Does your jurisdiction recognise such notices as conditions precedent?

    Contracts do not contain typically any strict provisions governing notices of claims for additional time and money which act as conditions precedent to bringing claims. The local jurisdiction does not recognise such notices as conditions precedent.

  22. What insurances are the parties required to hold? And how long for?

    The choice of the type of insurances, as well as their duration, is to be made freely upon the parties required to a contractual relationship. Still, when bigger construction works are to be performed, the Contractors’ All Risk (CAR) insurances are often agreed upon.

  23. How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?

    Domestic arbitral award are considered as equal to court final and binding judgment. Further, Serbia is a contracting party to the New York Convention on recognition and enforcement of arbitral award, thus all arbitral awards rendered in the territory of another Contracting Party State shall be recognised and enforced without a re-examination of the merits of the case.

    Arbitral award has to, however, fulfil the following conditions:

    1. It has to be rendered by a competent court of arbitration;
    2. It has to be rendered with respect to the parties’ right to participate in the arbitral proceedings (with special consideration on appropriate delivery of relevant documents)
    3. It has to be final;
    4. That none of the following reasons set out below are applicable to it:
      a) arbitral tribunal has exceeded given authority;
      b) there has been a breach of arbitration agreement;
      c) the arbitral award was based on a false statement of a witness or expert or on a forged document or the award
      d) the subject of dispute is not arbitrable;
      e) the recognition of the arbitral award would be against Serbian public policy.

    The procedure of recognizing and enforcing a foreign arbitral award may take up to two years, based on the complexity of the case, the location of the assets and the cooperation of the debtor, etc.

  24. How supportive are the local courts of arbitration (domestic and international)? How long does it typically take to enforce an award?

    Domestic arbitral award are considered as equal to court final and binding judgment. Further, Serbia is a contracting party to the New York Convention on recognition and enforcement of arbitral award, thus all arbitral awards rendered in the territory of another Contracting Party State shall be recognised and enforced without a re-examination of the merits of the case.

    Arbitral award has to, however, fulfil the following conditions:

    1. It has to be rendered by a competent court of arbitration;
    2. It has to be rendered with respect to the parties’ right to participate in the arbitral proceedings (with special consideration on appropriate delivery of relevant documents);
    3. It has to be final;
    4. That none of the following reasons set out below are applicable to it:
      1. arbitral tribunal has exceeded given authority;
      2. there has been a breach of arbitration agreement;
      3. the arbitral award was based on a false statement of a witness or expert or on a forged document or the award
      4. the subject of dispute is not arbitrable;
      5. the recognition of the arbitral award would be against Serbian public policy.

    The procedure of recognizing and enforcing a foreign arbitral award may take up to two years, based on the complexity of the case, the location of the assets and the cooperation of the debtor, etc.

  25. Are there any limitation periods for commencing disputes in your jurisdiction?

    Yes, there are. Pending to the specific legal action and claim undertaken the law provides different time bars to commence legal proceedings and to be granted with the judgment.

  26. How common are multi-party disputes? How is liability apportioned between multiple defendants? Does your jurisdiction recognise net contribution clauses (which limit the liability of a defaulting party to a “fair and reasonable” proportion of the innocent party’s losses), and are these commonly used?

    Generally the multi-party disputes are common in Serbia.

    The liability between multiple defendants could apportioned by; i) separate liability of each defendant in specific default; ii) joint liability of all defendants.

    Serbian law provides that a provision of a contract shall be valid by which the highest amount of compensation is determined, unless such amount is in obvious disproportion to the damage and unless the law provides otherwise for the specific case.

  27. What are the biggest challenges and opportunities facing the construction sector in your jurisdiction?

    Lack of financing and rather often the disrespect of the applicable laws, which leads to litigation, instead of conducting business without problems.

  28. What types of project are currently attracting the most investment in your jurisdiction (e.g. infrastructure, power, commercial property, offshore)?

    The infrastructure projects are currently attracting the most investment locally.

  29. How do you envisage technology affecting the construction and engineering industry in your jurisdiction over the next five years?

    Considering dynamics of amendments of basic laws regulating spatial planning and construction, it may be presumed that the legal system of the Republic of Serbia shall be able to provide prompt and adequate responses to any technological advancements in construction and engineering industry.