Contributed By Odvetniška družba Andrić
The principal laws governing construction matters in the Republic of Slovenia are the Construction Act (GZ), the Code of Obligations (OZ) and the Spatial Management Act (ZUreP-2). In addition to these, construction contracts may also be governed by the Special Construction Usages specifying the rights and obligations of the contracting parties in more detail, however, these may be excluded from the contractual relationship should the parties choose to do so.
In the Republic of Slovenia, there are no provisions mandating the use of a standardised construction or construction-related contract, however, International Federation of Consulting Engineers (FIDIC)-approved provisions are most widely used and are even stipulated as necessary in some projects financed by EU cohesion funds. The most commonly used are the FIDIC:
The construction industry was severely affected by the COVID-19 pandemic when it emerged in March 2020. During the months from March 2020 to June 2020, when the pandemic was declared in the Republic of Slovenia and the country was in a total lockdown, there was a significant drop in business in the construction sector. Since then, the construction industry has recovered, and projects are on track. B2B operations have been normal since then, while B2C operations have been restricted due to government decrees aimed at preventing the spread of the pandemic.
Employers in Slovenia are mostly legal entities, most often in the form of a limited liability company. They must procure the permits necessary for the construction project, hand over the construction site and all the documentation necessary for the execution of the construction project to the contractor, and pay the agreed contractual amounts in accordance with the construction contract. They have the right to appoint and carry out construction supervision and must notify the contractor of the identity of the nominated supervisor. Employers typically have no direct relationship with subcontractors, however, they may, under certain conditions, be directly liable to subcontractors, should the contractor not fulfil its obligations towards such subcontractors. Employers are generally financiers of their own construction projects, however, should a construction project be financed by a third-party financier, such financier usually has no relationship with any party to the construction other than the employer (eg, loan agreement).
The contractors are legal entities, mainly limited liability companies or independent entrepreneurs. They must keep a construction log and a construction ledger and carry out all the work necessary for the completion of the construction in accordance with the construction contract, applicable standards, laws and technical regulations, as well as perform other administrative/organisational tasks related to the safety and maintenance of the construction site. Furthermore, they are responsible for the work of the subcontractors whom they have entrusted with the execution of the work.
Unless otherwise specified in the construction contract, the contractor does not have to carry out the work personally but may contract it out to subcontractors. Subcontractors, as well as contractors, are legal entities, usually limited liability companies and independent entrepreneurs. Subcontractors follow the instructions and orders of the contractor, who remains solely liable for the performance of the work in relation to the employer, as if the contractor performed the work itself.
Financiers are most often banks or investment funds. In principle, the financier has no relationship with any party involved in the construction other than the employer, unless explicitly agreed otherwise with individual participants in the construction project.
The scope of the works is covered by the technical documentation, which is prepared by the designer, usually at the employer's request. The designer is a legal or natural entity who, as a participant in construction projects, prepares the technical documentation and meets the conditions under the law governing architecture and engineering. The technical documentation is a systematically arranged set of plans or technical descriptions, reports, calculations, drawings, and other annexes, which determine the location, and the functional, design and technical characteristics of the construction. On the basis of such technical documentation, a building permit is issued, in accordance with which the contractor is required to carry out the construction work.
In the event that the employer requests a variation of the works, there are typically two options for determining the scope and price of variations. The first one is that the parties determine, already in the underlying construction contract, the price for any potential variations requested by the employer, or at least a mechanism for determining the price. In the second option, the parties are completely free to negotiate the price of variations. In such a case, the employer must request that the contractor send a quotation for additional works, including the price, the period of performance and the period of validity of the quotation. Once there is consensus between the parties, they conclude an addendum to the construction contract.
The technical documentation is prepared by the designer, usually on the basis of a design contract concluded with the employer. The designer's task is to ensure, in accordance with the rules of their profession, that the documentation is prepared in such a way that it complies with statutory and professional requirements. The designer is responsible to the employer for the content and correctness of the technical documentation used to obtain a building permit. After the building permit is obtained, the employer concludes a construction contract with the contractor who is responsible for carrying out the work in accordance with the building permit and technical documentation. In order to ensure the correct performance of the works, the employer must nominate a supervisor who is responsible, in relation to the employer, for supervision of the contractor's work and is, usually, entitled to act and issue binding instructions on behalf of the employer.
See 3.3 Design.
The contractor is responsible for the layout, protection and appropriate marking of the construction site and must ensure the safety of the site, those working on it, passersby, traffic, neighbouring properties and the surrounding area.
Any special requirements regarding pollution, obstacles, geotechnical conditions and especially archaeological finds, are usually dealt with by the employer in the building permit obtainment phase, as the employer is also typically obliged to obtain consents and permits beforehand from authorities specialised in the above-mentioned areas.
Construction usually requires a final building permit which is issued on the basis of the technical documentation provided and submitted by the designer on behalf of the employer. In the case of minor structures, the construction may be carried out without a permit. After the construction is completed, the employer is usually obliged to obtain a fit-for-use permit, unless the construction was carried out without a building permit. The employer remains solely responsible for acquiring the building permit and all other permits in accordance with the Construction Act.
Slovenian legislation does not include any special provisions as to which party is responsible for the maintenance of the works during construction. The contractor is responsible for the maintenance of the entire construction site during the work itself, unless otherwise specified in the construction contract.
A supervisor appointed by the employer is also involved in the construction project. The supervisor's task is to supervise the work of the contractor and the designer so as to ensure compliance with the requirements of the construction contract and the Construction Act, preventative action and the timely prevention of defects.
The employer is usually the one entitled to give instructions to all participants in the construction project, except for insurance companies and banks, as these are usually contracting parties of the contractor only to the extent that the contractor has to provide bank guarantees, bills of exchange, proof of insurance coverage, etc, to the employer.
According to the Construction Act, the employer must obtain a fit-for-use permit upon completion of the construction. Such a permit is issued – under the condition that the works have been carried out in accordance with the building permit – by the competent administrative authority for construction matters following a technical inspection conducted by a specially appointed committee.
On completion of the works, the contractor is obliged to enter the date of completion in the construction log and invite the employer to accept and take over the works. The works are typically deemed to be completed upon the obtainment of the fit-for-use permit, however, the parties may agree otherwise. The takeover process typically includes the contracting parties signing a handover protocol, detailing the works taken over and any potential defects to be remedied by the contractor.
According to the general provisions of the Code of Obligations, the employer is obliged to inspect the work as soon as is reasonably practicable in the ordinary course of events and to inform the contractor immediately of any defects found. After inspection and acceptance of the work, the contractor is no longer liable for apparent defects which could and should have been noticed during normal inspection, unless the contractor was aware of them but failed to point them out to the employer. This does not apply to hidden defects not noticeable at first sight, as the contractor remains liable for these for two years after the acceptance of the works. Furthermore, the contractor is liable for any defects in the solidity of the construction, should these appear during the ten years following the acceptance of the works.
The general provisions concerning liability may be expanded upon by the parties and it is customary for the contractor to provide extra warranties and security instruments in the construction contract.
The price is usually determined in accordance with one of two options, the first one being the turnkey clause and the second being the unit of measurement. The widely used turnkey clause means that the contractor is obliged to perform all the works necessary for the completion of the project, excluding additionally requested and unforeseeable works. The second option means that the price is determined per unit of measurement, therefore the final price depends on the materials used and hours of work.
Construction works are typically paid monthly by the employer in accordance with the progress made by the contractor, taking into account the timeliness and correctness of the works (reserved payments, contractual penalties, etc). Should the employer fail to fulfil its payment obligations, the contractor is usually entitled to suspend the works until payment or, ultimately, withdraw from the contract.
The contractor typically invoices the works monthly in accordance with the progress made and, upon completion of the works, a final calculation is made by both contracting parties detailing the settled and potential outstanding amounts.
The timetable is usually agreed upon by the employer and the contractor and enforced by the supervisor engaged by the employer to act on its behalf. Should the contractor not comply with the timetable, a contractual penalty for the delay is usually imposed on the contractor, and, in certain cases, the employer may also withdraw from the contract and cash in a bank guarantee issued by the contractor's bank as an instrument securing the performance of the works.
In the event of delays, the contractor usually informs the employer and asks for an extension. Should the employer deem the request to be well founded, it may grant the extension – typically, an annex to the underlying contract is concluded. Should the request not be well founded, the employer may make use of the remedies described under 5.1 Planning.
See 5.1 Planning.
See 5.2 Delays.
Force majeure means any unforeseen and unexpected event occurring independently of the will of the parties and which the parties could not have foreseen at the time of conclusion of the contract, which affects the performance of the contractual obligations. The contracting parties may specify in the contract precisely which events shall be considered force majeure.
Unforeseen circumstances are set out in the Special Construction Usages that apply to construction relationships, unless explicitly excluded by the parties in the construction contract. The contracting parties may, as already pointed out in 5.5 Force Majeure, additionally define what constitutes unforeseen circumstances.
Under Slovenian law, a construction contract cannot exclude liability for damage caused intentionally or by gross negligence, or that affects the solidity of the construction.
See 6.1 Exclusion of Liability.
The parties to the contract have the option to exclude liability for slight negligence, but the court may invalidate such clauses if the clause results from an unequal relationship between the parties to the contract. The parties may agree on a maximum amount of damages if the amount so fixed is not manifestly disproportionate to the damage or if the law does not provide otherwise in the particular case. The contractor may be free from liability in relation to the employer if it warned the employer that the requested work would not be appropriate, but the employer insisted on its performance despite the contractor's warning.
The parties to the contract agree on the compensation at their own discretion. In most cases, the contractor is liable to the employer for delay and defective performance of the works. The contractor typically has insurance coverage for different types of damage caused by the contractor in connection with the performance of construction works.
Bank guarantees for the performance of work and for the rectification of defects within the warranty period are the most widely used instruments to ensure that the contractor fulfils its obligations under the construction contract. Additionally, the parties may agree that the employer reserve a portion of the amounts owed to the contractor each month as a security instrument similar to the bank guarantees.
The Slovenian Construction Act provides for compulsory construction insurance to cover damage arising in connection with the carrying out of the activity. The contractor would typically take out insurance covering the construction works, damage to the construction site and building, damage to health or assets of third persons, force majeure, etc.
In the event of insolvency proceedings being opened against either the contractor or the employer, the construction contract usually provides for the possibility of withdrawal from the contract by the other party.
Risk sharing is possible, but not common, as the employer typically transfers all possible construction-related risks to the contractor.
Construction contracts usually contain a provision stipulating that the contractor remains solely responsible for the performance of the works in relation to the employer, regardless that personnel or subcontractors actually performed the work on the contractor's behalf.
The contractor typically has the option to subcontract the work, unless otherwise specified in the construction contract. It is common, however, for the contractor to reveal its subcontractors to the employer prior to the conclusion of the construction contract.
All intellectual property is typically transferred to the employer to the extent necessary for the execution of the construction project.
In the event of a breach of the construction contract, the employer can claim restitution and damages against the offender or make use of security instruments issued in its favour. Ultimately, the employer may also withdraw from the contract.
The construction contract may limit the liability of the parties, however, under Slovenian law, the right to seek a remedy before a competent court cannot be waived.
See 9.2 Restricting Remedies.
To the extent permitted, direct and consequential damages are typically limited, however, liability for intent and gross negligence cannot be excluded.
Retention and suspension rights stipulated under the general rules of obligations are typically not excluded, unless explicitly agreed otherwise by the parties.
Construction-related disputes are typically adjudicated by the specialised commercial law departments of the district courts. The location depends on the jurisdiction clause agreed upon by the parties.
The parties may initiate a mediation procedure, but only where both parties agree to it. Mediation is very commonly used, both before and after the initiation of court proceedings. The parties may also agree that their dispute be settled in arbitration proceedings, however, they must agree on an appropriate arbitration clause at the conclusion of the construction contract or at a later time.