Law on Contracts and Torts

Contract of construction

A contract of construction shall be a contract for services by which a contractor assumes the obligation to construct, according to a specific plan and within a stipulated time limit, a specific building on an agreed building site, or to perform on such building site, or on an already existing facility, some other civil engineering works, while the purchaser assumes the obligation to pay in return an agreed price. A contract of construction must be concluded in written form.

Form and content of the contract of construction, rights and responsibilities of the contracting parties, liability for defects and especially responsibility of contractor and project engineer for the soundness of building are regulated by the provisions of the Law on Contracts and Torts.

Building

In this Chapter, the term “building” shall include buildings, dams, bridges, tunnels, water supply installations, sewerage systems, roads, railroad tracks, wells and other civil engineering facilities the manufacture of which requires large and more complex works.

Supervison over the Works and Material Quality Control

A contractor shall be bound to enable the purchaser to effect permanent supervision over the works and the control of quantity and quality of the material used.

Departure from a Construction Plan

Every departure from a construction plan, or works stipulated, effected by the supplier shall need written approval from the purchaser. He shall not be entitled to demand increase of price stipulated for works done by him without such approval.

Urgent and Unforeseen Works

Unforeseen works shall be works the undertaking of which is necessary in order to ensure stability of a facility, or to prevent damage, and which were caused by an unexpectedly less favourable quality of soil, unexpected occurence of water or other extraordinary and unexpected events. Unforeseen works may be done by a contractor even without previous approval by the purchaser if, due to their urgency, he was not able to obtain such approval.

The contractor shall be bound to notify the purchaser without delay about such phenomena and of measures taken and shall be entitled to fair remuneration for the unforeseen works which had to be done.

The purchaser may repudiate the contract if, due to such works, the price stipulated would have to be considerably raised, while being obliged to notify the contractor accordingly and without delay.

In case of repudiation of contract, the purchaser shall be bound to pay to the contractor a corresponding part of the price for works already carried out, as well as fair remuneration covering his necessary expenses.

Contract of construction and Price of works

The price of works may be determined according to a measurement unit (unit price) or as a total amount for the entire facility (stipulated aggregate price).

Change of Price

Unless otherwise provided by contract concerning a change of price, a contractor fulfilling his obligation within a specified time limit may demand an increased price for the works done, if in the period between entering into contract and its fulfilment prices have been raised of elements on the ground of which the price of works was agreed, so that it would be necessary that such price be more than two percent higher.

Should a contractor through his fault fail to perform stipulated works on time he may demand a price increase of works if, in the period between entering into contract and the day on which works had to be completed according to contract, the prices of elements on the ground of which the price of works was determined have been raised, so that it would be necessary that the price, as compared to new prices, be higher by more than five percent.

A contractor who fulfilling his obligation within a specified time limit and a contractor through his fault fail to perform stipulated works on time may request only the difference in price of works exceeding two, or five percent.

A contractor shall not refer to the increased prices of elements on the ground of which the price of works was determined if such price increase took place after his delayed fulfilling his obligations.

A Provision on Unchangeability of Prices

Should it be stipulated that the price of works shall not be changed if after entering into contract prices of elements on the ground of which it was agreed be raised, the contractor may, in spite of such contractual clause, demand a change of price of the works, if prices of the elements be raised to such a degree that it would be necessary for the price of works to be higher by more than ten percent.  However, in that case the contractor may demand only a difference in price exceeding ten percent, unless the increase in prices took place after he became late in fulfilling his obligations.

In cases that the price stipulated had to be raised considerably, the purchaser may repudiate the contract.

In case of repudiation of contract, the purchaser shall be obliged to pay to the contractor a corresponding part of the price stipulated for the works completed up to that time, as well as fair remuneration covering necessary expenses incurred by him.

Right of a Purchaser to Demand Reduction of Stipulated Price

If in the period between entering into contract and fulfilling of the contractor’s obligation, the prices of elements serving as a ground for determining the price of works have been reduced by more than two percent, and if the works were completed within the time limit specified by contract, the purchaser shall be entitled to demand a corresponding reduction of price of the works stipulated above such percentage.

If it was stipulated that the price of works shall not be changed, if the works were completed within the time specified by contract, the purchaser shall be entitled to a reduction of the price stipulated, if the prices of elements serving as a ground for determining the price were lowered to such a degree that the price would have been more than ten percent lower, which reduction shall amount to the difference in price over ten percent.

In case of a contractor being late with the works, the purchaser shall be entitled to a proportionate reduction of the price of works for every reduction of price of elements serving as a ground for determining the price of works.

Contract of construction with a particular clause

Should a “turn-key contract” clause, or a similar clause be included in a contract of construction, the contractor shall assume an independent obligation to perform all works necessary for the construction and use of a specific complete facility.

In such a case the price stipulated shall also include the value of all unforeseen works and surplus works, while smaller volume of works shall not influence the price stipulated.

Should several contractors participate as the contracting party in a turn-key contract, their liability to the purchaser shall be joint.

Liability for defects

Application of Rules Covering Contract for Services

Unless otherwise specified in the provisions of Law on Contracts and Torts which regulate contract of construction, the corresponding rules covering the contract for services shall apply to liability for defects in a building.

Transfer of a Right Arising from Liability for Defects

Rights of purchaser against a contractor acquired on the ground of defects in a building shall pass to all subsequent acquirers of the building or its part, but subsequent acquirers shall have no new time limits for notification and instituting legal proceedings, so that the time limit of the predecessors shall be accounted to them.

Particular Rights of a Holder of Tenancy Right

A holder of a tenancy right in an apartment in social ownership shall be entitled to demand that the contractor eliminate defects within the limits of his liability for defects of the building regarding the purchaser.

Responsibility of contractor and project engineer for the soundness of building

A contractor shall be liable for defects in the construction process of the building relating to its soundness, should such defects appear within a ten year period from the delivery and acceptance of the works.

The contractor shall also be liable for defects in the building site which appear within a ten year period from the delivery and acceptance of the works, unless a specialized organisation has supplied an expert opinion as to the suitability of the building site, and in the building process itself there were no visible defects which would raise doubt as to the reliability of the expert opinion.

The same shall apply to a project engineer should a defect in the building be caused by a defect in the construction plan. Project engineer and contractor shall be liable according to the provisions of the preceding paragraphs not only to the purchaser but also to every other acquirer of the building.

Liability of the project engineer and contractor shall not be excluded or limited by contract.

Duty of Notification and Forfeit of Right

A purchaser or other acquirer shall be bound to notify the contractor and the project engineer of defects within a six month time limit after discovering a defect; otherwise they shall lose the right to claim the defect.

The right of the purchaser or other acquirer against the contractor, or a project engineer, on the ground of their liability for defect shall be terminated after a year, counting from the day of the purchaser’s, or acquirer’s notifying the project engineer, or contractor, of the defect.

Reduction and Exclusion of Liability

A contractor shall not be exempted from liability if damage was caused through his proceeding with specific works according to the purchaser’s request. However, if he warned the purchaser, prior to executing requested specific works, that there was a danger of damage, his liability shall be reduced and, according to circumstances of the case, may even be excluded.

Recourses

Should a contractor or a project engineer be liable for damage, the liability of each one of them shall be determined commensurately to the scope of their respective fault.

A project engineer designing the plans of a building and being entrusted with supervision over the carrying out of planned works, shall also be liable for defects in the completed works which were caused through the fault of the contractor, provided the project engineer could have noticed them by normal and reasonable supervision of works, but he shall be entitled to claim corresponding recovery against the contractor.

If contractor compensates loss due to defects in the works completed, he shall be entitled to claim recovery from the project engineer to the degree in which the defects of the completed works originated because of defects in the construction plans of the building.

Should a responsible person entrusted by the contractor to carry out part of the works be liable for defects, the contractor, while intending to claim damages from him, must notify him of the existence of the defect within a two month time limit, counting from the day of his own obtaining information from the purchaser concerning the same defect.

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