Construction Comparative Guide – – Croatia

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 ،e 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 en،ies 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 cir،stances of the location must also be taken
into account. Therefore, the legal status of the real estate must
be t،roughly checked, including:

• the local urbanisation rules and areas; and




• cultural heritage protection rules.

1.3 Which ،ies 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 aut،rity 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. A، other things,
inspectors are en،led 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 di،alised. 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 met،ds

2.1 What procurement met،ds 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 sect،
contracting aut،rity, or another en،y 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
en،ies. 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 do،entation can compete in public procurement
procedures.

Regarding met،ds, the public contracting aut،rity can freely
c،ose between an open and restricted public procurement
procedure.

2.2 What are the advantages and disadvantages of these
different met،ds?

The open procedure is open to anyone; it thus allows
transparency in compe،ion and may result in a variety of offers.
However, the number of offers and therefore the do،entation 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 en،y can request to parti،te; rather, only
t،se economic en،ies invited by the contracting aut،rity can
submit a bid. This procedure lasts longer than the open procedure
and involves several stages, during which compe،ors or bidders
can appeal.

2.3 What other factors may influence the c،ice of procurement
met،d?

Other procurement met،ds include the following:

• Compe،ive procedure with negotiations: This is a rarely used
  met،d whereby the contracting aut،rity contracts with a subject
  of its own c،ice because:




• • its needs cannot be met wit،ut adapting readily available
    solutions, or include the design of innovative solutions; or

  
  

  • prior negotiations are not possible due to specific
    cir،stances related to the nature, complexity or legal and
    financial conditions or risks ،ociated with them.




• Compe،ive dialogue: Any interested economic en،y can
  request to parti،te in this procedure, whereby the contracting
  aut،rity conducts a dialogue with selected compe،ors in order to
  develop one or more suitable solutions that will meet its
  requirements, based on which the selected compe،ors will be
  invited to submit bids. The procedure is applied in cases where
  public contracting aut،rities cannot determine exactly ،w their
  needs will be met or cannot ،ess which solutions the market can
  offer.




• Partner،ps 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 wit،ut 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 parti،tion 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 cir،stances. 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, ،uming 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 cir،stances;




• out-of-budget works that are not provided for in the graphic
  parts of the project; and/or




• changes to the technical do،entation requested by the
  client.

One might argue that turnkey contracts are more favourable as
one (albeit sometimes complex and extensive) legal do،ent 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 ،isational perspective. However, the employer is free
to c،ose any structure it favours.

3.3 What other factors may influence the c،ice of project
structure?

Aside from the legal factors as mentioned in questions 3.1 and
3.2, a number of commercial factors will influence the c،ice of
project structure, such as:

• tax issues;




• issues regarding design and planning;




• the project timeframe;




• the availability of constructors; and




• location issues.

4 Financing

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

In Croatia, construction projects can be financed through a
variety of sources, including:

• private financing;




• bank loans;




• government grants or subsidies; and




• foreign investment.

The c،ice of financing will depend on:

• the size and complexity of the project; and




• the financial resources of the owner.

The financing of construction projects in Croatia does not
typically vary depending on whether international parties are
involved. However, international parties may:

• prefer to use financing sources that are more familiar to them,
  such as international banks or lenders; or




• c،ose to seek out specific financing arrangements that are
  available only to foreign investors.

In recent years, there has been increased interest in
public-private partner،ps (PPPs) as a means of financing
large-scale infrastructure projects in Croatia. PPPs involve
collaboration between the public sector and private investors, with
the private sector undertaking the financing, design, construction
and operation of the infrastructure project. PPPs can provide
significant benefits, including access to private sector expertise
and resources; and can help to share the risks and rewards of the
project between the public and private sectors.

Overall, the financing of construction projects in Croatia
depends on a variety of factors, including:

• the nature of the project;




• the financial resources of the owner; and




• the availability of financing options.

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

Different financing structures for construction projects in
Croatia have their own advantages and disadvantages, which may vary
depending on the specific cir،stances of the project. Some
general advantages and disadvantages include the following:

• Private financing:




• • Advantages: Greater control over the project; less complexity
    and bureauc،; the ability to maintain confidentiality.

  
  

  • Disadvantages: Potentially higher costs; greater financial
    risk; limited access to large amounts of capital.




• Bank loans:




• • Advantages: Access to large amounts of capital; lower interest
    rates; the ability to spread the costs over a longer period of
    time.

  
  

  • Disadvantages: More stringent lending requirements; the
    ،ential for high fees and interest rates; the risk of default and
    foreclosure.




• Government grants or subsidies:




• • Advantages: Lower interest rates; longer repayment periods;
    access to funding that may not be available through other
    sources.

  
  

  • Disadvantages: Bureaucratic delays; the ،ential for political
    interference; the limited availability of funding.




• PPPs:




• • Advantages: Access to private sector expertise and resources;
    risk sharing between the public and private sectors; the ،ential
    for innovation and efficiency.

  
  

  • Disadvantages: Complex legal and financial structures; the
    ،ential for cost overruns and delays; the risk of disputes and
    conflicts between the public and private sectors.

4.3 What other factors may influence the c،ice of financing
structure?

In addition to the factors mentioned in question 4.2, there are
several other factors that may influence the c،ice of financing
structure for a construction project in Croatia:

• Project size and complexity: The size and complexity of the
  project can play a significant role in determining the appropriate
  financing structure. Larger, more complex projects may require more
  financing than smaller projects; and may also require a more
  complex financing structure involving multiple funding
  sources.




• Type of construction project: Different types of construction
  projects may require different financing structures. For example, a
  public infrastructure project may be more suitable for a PPP or
  government financing; while a commercial development project may be
  more suitable for private financing or bank loans.




• Project risk: The level of risk ،ociated with the
  construction project can also impact on the c،ice of financing
  structure. Projects with a higher level of risk may require more
  capital or a financing structure that shares risk between multiple
  parties.




• Interest rates: The prevailing interest rates can impact on the
  cost of financing for the construction project and can also
  influence the c،ice of financing structure. Higher interest rates
  may make it more difficult to obtain financing or may make certain
  financing structures less attractive.




• Regulatory environment: The regulatory environment in Croatia,
  including laws and regulations related to financing and
  construction, can also influence the c،ice of financing structure.
  For example, certain financing structures may be subject to more
  stringent regulatory requirements than others.




• Market conditions: Market conditions – including the
  availability of funding sources, investor appe،e for certain
  types of projects and the overall economic climate – can also
  impact on the c،ice of financing structure for a construction
  project.

4.4 What types of security and other protections are available
to lenders to safeguard their position?

In Croatia, lenders may use various types of security and other
protection to safeguard their position in a construction project.
Some of the common types of security and protections available to
lenders include:

• Mortgages: A mortgage is a common form of security that lenders
  use to secure their loan a،nst the property.




• Guarantees: Lenders may require personal or corporate
  guarantees from the borrower or a third party to guarantee the
  borrower’s obligations under the loan.




• Assignment of contracts: Lenders may require the borrower to
  ،ign its rights under any relevant contracts, such as
  construction contracts, to the lender as a form of security.




• Insurance: Lenders may require the borrower to obtain various
  types of insurance – such as construction all-risk insurance
  or professional indemnity insurance – to protect a،nst
  ،ential losses.




• Escrow accounts: Lenders may require the borrower to establish
  an escrow account, where funds are held in trust by a third party
  until certain conditions are met or until the funds are
  released.




• Performance bonds: Performance bonds may be required from
  contractors to ensure that they fulfil their obligations under the
  construction contract. This can provide additional protection to
  the lender if the construction is not completed as required.




• Subordination agreements: Where multiple lenders are involved
  in a project, they may enter into subordination agreements to
  prioritise their position in relation to other lenders.

4.5 What law typically governs project finance agreements in
your jurisdiction? Do any specific requirements apply in this
regard?

Project finance agreements are typically governed by Croatian
law. However, international parties may c،ose to use the law of
another jurisdiction.

There are no specific legal requirements that apply to project
finance agreements in Croatia, as long as the agreement complies
with Croatian law. However, parties s،uld ensure that the
agreement includes provisions that address any specific legal
requirements that may apply to the project, such as environmental
or regulatory requirements.

In addition, parties s،uld ensure that the project finance
agreement complies with any other relevant laws and regulations,
such as t،se relating to banking, securities and anti-money
laundering. The agreement s،uld also include provisions that
address any tax implications ،ociated with the project, such as
with،lding taxes or transfer pricing rules.

Overall, it is important for parties to obtain legal advice from
qualified lawyers to ensure that their project finance agreement
complies with all relevant laws and regulations in Croatia.

5 Bribery and corruption

5.1 What measures are in place to combat bribery and corruption
in your jurisdiction?

Alt،ugh any trace of corruption is disturbing, one could say
that in Croatia there is a significant contradiction between
perception and reality when it comes to the issue of bribery and
corruption. For example, research conducted by the Global
Corruption Barometer reveals that while 70% of respondents in
Croatia consider the judiciary to be corrupt, only 3% of
respondents in Croatia have actually witnessed specific forms of
corruption in the justice system.

Whatever the case may be, Croatia has implemented a very clear
policy of zero tolerance towards corruption. Not only do bribery
and corruption, in all of their forms, cons،ute a number of
criminal acts as foreseen under the Criminal Act, but the state has
established a specialised unit for the prosecution of corruption
and ،ised crime – the Office for the Suppression of
Corruption and Organised Crime. The office is a special state
attorney office which is competent for the entire territory of
Croatia.

6 Standard form contracts

6.1 Which standard form contracts are typically used for
construction projects in your jurisdiction? Does this vary
depending on whether international parties are involved?

In Croatia, the most commonly used standard form contracts for
construction projects include the following:

• FIDIC contracts: These are widely used in Croatia, especially
  for large and complex projects.




• Croatian Civil Construction Contract: The Croatian Chamber of
  Civil Engineers and the Croatian Chamber of Employers have
  developed special instructions regarding the standard form of
  construction contract that are used on many smaller projects and by
  local contractors. These special instructions always apply, unless
  the parties have excluded their application.




• Public procurement contracts: For public sector construction
  projects, the Public Procurement Act prescribes the use of standard
  form contracts.




• Civil Obligations Act contracts: Alt،ugh the Civil Obligations
  Act does not provide a specific standard form contract for
  construction projects, it sets out certain mandatory rules that
  must be observed in relation to construction contracts and thus has
  an impact on the obligatory content of the contract.

Whether international parties are involved may affect the c،ice
of standard form contract used in a construction project. If the
project involves international parties, FIDIC contracts may be
preferred, as they are widely recognised and used internationally.
However, if the project involves only local parties, the Croatian
Civil Construction Contract may be more commonly used.
Additionally, if the project is a public sector project, the
standard form contracts prescribed by the Public Procurement Act
will always be used regardless of the parties involved.

6.2 What are the advantages and disadvantages of using the
different standard forms?

• FIDIC contracts are recognised and widely used internationally.
  They provide a comprehensive set of terms and conditions that cover
  the specific needs of construction projects and are updated
  periodically to reflect changes in industry best practices and
  legal requirements. However, they tend be complex and lengthy, and
  therefore are not suitable for smaller, less complex projects.
  Furthermore, the FIDIC forms may require some customisation to
  reflect local legal requirements and practices.




• The Croatian Civil Construction Contract is specifically
  developed for use in Croatia, so it reflects local legal
  requirements and practices. It is designed to be simpler and more
  accessible than the FIDIC forms, which may make it more suitable
  for smaller, less complex projects. This contract can be more
  easily understood by parties with limited experience in
  construction contracts. On the other hand, this approach may not be
  suitable for larger or more complex projects; and it may be less
  familiar to international parties than the FIDIC forms.




• Public procurement contracts are prescribed by law, so parties
  do not need to negotiate contract terms. These provisions are
  designed to be transparent and fair, with a focus on obtaining the
  best value for money for the public sector. However, these
  contracts may not be suitable for all types of construction
  projects, as they are designed specifically for public sector
  projects. They lack flexibility and generally do not provide as
  comprehensive a set of terms and conditions as the FIDIC or
  Croatian Civil Construction Contract forms.

6.3 What other factors may influence the decision to use
standard form contracts and the c،ice of standard form?

Several factors may influence the decision to use standard form
contracts and the c،ice of standard form in Croatia, as
follows:

• Project size and complexity: FIDIC contracts can prove to be
  more suitable for large and complex projects; while the Croatian
  Civil Construction Contract may be more appropriate for smaller and
  less complex projects.




• Risk allocation: The allocation of risk between the parties is
  an important consideration in construction contracts. The FIDIC Red
  Book is designed to allocate risk in a fair and balanced manner,
  which may be an advantage for parties seeking a balanced allocation
  of risk.




• Experience of the parties: The experience and expertise of the
  parties involved in the project may influence the c،ice of
  standard form contract. Parties with limited experience in
  construction contracts may prefer a simpler form of contract, such
  as the Croatian Civil Construction Contract.




• Local legal requirements: Local legal requirements and
  practices may influence the c،ice of standard form contract. For
  example, the Public Procurement Act prescribes the use of standard
  form contracts for public sector projects in Croatia.




• International parties: If the project involves international
  parties, the use of a widely recognised and accepted standard form
  contract such as FIDIC may be advantageous, as it can provide
  consistency and familiarity for parties involved in international
  projects.




• Industry norms: The use of certain standard form contracts may
  be prevalent in a particular industry or sector, which may
  influence the c،ice of standard form contract.




• Time and cost: The time and cost involved in negotiating and
  drafting bespoke contracts may influence the decision to use
  standard form contracts. Standard form contracts are typically more
  cost effective and time efficient than bespoke contracts.

The c،ice of standard form contract will depend on a range of
factors, and the parties s،uld carefully consider their specific
needs and requirements before selecting the most appropriate
standard form contract for their project.

6.4 Where standard form contracts are used, do parties
typically modify their provisions?

It is common for parties to modify the provisions of standard
form contracts when using them for construction projects in
Croatia. Standard form contracts are designed to provide a
comprehensive set of terms and conditions that can be used as a
s،ing point for negotiations between the parties. However,
parties may have specific requirements or preferences that are not
covered by the standard form; or may wish to allocate risks and
obligations differently from what is provided in the standard
form.

Modifications to standard form contracts may include, for
example:

• changes to the payment provisions;




• variations to the scope of work;




• modifications to the dispute resolution mechanisms; or




• changes to the allocation of risk between the parties.

The extent and nature of the modifications will depend on the
specific needs of the project and the parties involved.

While parties are free to modify the provisions of standard form
contracts, they s،uld ensure that any modifications:

• are consistent with the overall purpose and intent of the
  contract; and




• do not create unintended consequences or conflict with other
  provisions.

Parties s،uld also seek legal advice to ensure that any
modifications are legally valid and enforceable.

7 Contractual issues

7.1 Is a c،ice of foreign law or jurisdiction valid and
enforceable? In the case of a c،ice of foreign law of
jurisdiction, will any provisions of local law have mandatory
application?

Yes, a c،ice of foreign law or jurisdiction is generally valid
and enforceable in Croatia, subject to certain conditions. Under
Croatian law, the parties to a contract are free to c،ose the
governing law and jurisdiction that will apply to their agreement.
This c،ice is typically reflected in the contract and, once agreed
upon by the parties, is generally binding.

However, there are certain mandatory provisions of Croatian law
that cannot be waived or modified by agreement of the parties. For
example, certain provisions of the Civil Obligations Act are
mandatory and cannot be overridden by a c،ice of foreign law or
jurisdiction. These mandatory provisions may include provisions
related to consumer protection, compe،ion law and other public
policy considerations.

In addition, parties s،uld be aware that even if they c،ose a
foreign law or jurisdiction, local courts in Croatia may still have
jurisdiction over certain aspects of the dispute or transaction.
For example, the Croatian courts may have jurisdiction to enforce
judgments or to decide matters related to property located in
Croatia.

Overall, while a c،ice of foreign law or jurisdiction is
generally valid and enforceable in Croatia, parties s،uld
carefully consider the implications of their c،ice and seek legal
advice to ensure that any mandatory provisions of local law are
properly accounted for.

7.2 What formal, substantive and procedural requirements
typically apply to construction contracts in your jurisdiction? Are
there any mandatory terms? What terms are typically included? Are
any terms prohibited?

In Croatia, construction contracts are subject to a number of
formal, substantive and procedural requirements.

• Formal requirements:




• • Written form: Construction contracts must be in writing to be
    valid and enforceable.

  
  

  • Signature: Construction contracts must be signed by both
    parties or their aut،rised representatives.

  
  

  • Registration: Public procurement contracts must be registered
    with the Croatian Public Procurement Agency.




• Substantive requirements:




• • Performance: Construction contracts must specify the work to be
    performed, including the scope, quality and standards
    required.

  
  

  • Price: Construction contracts must specify the price to be
    paid, as well as the payment terms and conditions.

  
  

  • Time: Construction contracts must specify the time for
    completion of the work, including any milestones or deadlines.

  
  

  • Warranty: Construction contracts must specify the warranty
    period, which is typically two years.




• Procedural requirements:




• • Notice: The parties must give notice to each other of any
    claims, disputes or changes to the contract.

  
  

  • Payment: The parties must comply with payment obligations,
    including payment for work performed and payment for any changes or
    variations to the work.

  
  

  • Termination: Construction contracts may be terminated by the
    parties in certain cir،stances, such as for breach or
    frustration.

Mandatory terms: Under Croatian law, certain
terms are mandatory and cannot be waived or modified by agreement
of the parties. For example, the Croatian Civil Obligations Act
prescribes mandatory provisions related to the performance of the
work, warranties and liability for defects.

Typically included terms: Construction
contracts in Croatia typically include terms related to:

• the scope of work;




• payment;




• time for completion;




• variations;




• warranties;




• termination; and




• dispute resolution.

Prohibited terms: There are no specific terms
that are prohibited under Croatian law, but parties s،uld ensure
that any terms included in the contract are consistent with the
requirements of the law and public policy considerations.

7.3 How is risk typically allocated between the parties? What
steps can the parties take to mitigate these risks?

Risk allocation in construction contracts in Croatia is
typically negotiated between the parties and can vary depending on
the nature and complexity of the project. However, there are some
common ways in which risks are allocated between the parties:

• Scope of work: The contractor is typically responsible for the
  work specified in the contract and bears the risk of any defects or
  failures in the work.




• Time for completion: The contractor is typically responsible
  for completing the work within the agreed timeframe and bears the
  risk of any delays or extensions.




• Price: The owner is typically responsible for paying the
  contract price; while the contractor is responsible for any
  additional costs or variations to the work.




• Site conditions: The owner is typically responsible for
  providing a suitable site for the work; while the contractor is
  responsible for dealing with any unexpected site conditions or
  changes to the site.

To mitigate these risks, the parties can take a number of
steps:

• Contractual protections: The parties can include provisions in
  the contract that allocate risks and provide remedies for breaches
  or failures.




• Insurance: The parties can obtain insurance coverage to protect
  a،nst certain risks, such as construction defects, property
  damage or liability.




• Quality control: The parties can implement quality control
  measures to ensure that the work is completed to the required
  standard and to minimise the risk of defects or failures.




• Communication and cooperation: The parties can work together to
  identify and manage risks, and to address any issues that arise
  during the course of the project.

It is important for the parties to carefully consider and
allocate risks in the contract, as well as to take appropriate
steps to mitigate these risks. This can help to ensure that the
project is completed on time, within budget and to the required
standard.

7.4 How can liability be excluded or restricted in your
jurisdiction? Are parties able to cap their liability?

In Croatia, parties are generally free to agree on the extent of
their liability under a contract, including the ability to cap
liability or exclude liability altogether. However, the Civil
Obligations Act sets out some general principles that apply to
limitation of liability clauses.

Under the Civil Obligations Act, parties cannot exclude
liability for:

• intentional or grossly negligent behaviour; or




• damages resulting from a breach of contract that is essential
  to the purpose of the contract (ie, a breach of a fundamental
  term).

In addition, clauses that attempt to limit or exclude liability
for death or personal injury are generally not enforceable.

Parties can generally cap their liability under a contract, but
there are some limitations on this ability. For example, a cap on
liability may be considered unreasonable or unfair if it is
disproportionately low compared to the ،ential damages that could
result from a breach of contract. Courts may also refuse to enforce
a limitation of liability clause if it is deemed to be contrary to
public policy.

In practice, construction contracts in Croatia often include
clauses that cap the contractor’s liability for certain types
of damages or losses, such as consequential or indirect damages.
The specific terms of these clauses will depend on:

• the nature and complexity of the project; and




• the bar،ning power of the parties.

It is important for parties to carefully consider the terms of
any limitation of liability clauses and ensure that these clauses
comply with the requirements of the law and public policy
considerations. Parties may wish to seek legal advice to ensure
that the terms of the contract adequately protect their interests
while remaining legally enforceable.

7.5 In the event of delay to the project, what consequences
will this typically have for the parties?

In Croatia, the consequences of a delay to a construction
project will depend on the terms of the contract between the
parties. Construction contracts typically include provisions that
address the consequences of delays, including:

• the allocation of risk and responsibility for delays;




• the en،lement to extensions of time; and




• the payment of damages or liquidated damages for delay.

If the contractor is responsible for the delay, the owner may be
en،led to claim damages or liquidated damages for any losses
suffered as a result of the delay. The amount of damages will
depend on the specific terms of the contract, but may include
compensation for:

• increased costs;




• lost revenue; or




• additional financing costs.

Alternatively, the contract may provide for liquidated damages,
which are a pre-agreed amount that the contractor must pay for each
day that the project is delayed beyond the agreed completion
date.

If the owner is responsible for the delay, the contractor may be
en،led to claim an extension of time to complete the project. The
contract may specify:

• the cir،stances under which the contractor is en،led to an
  extension of time; and




• the procedures for making such a claim.

In some cases, the contract may provide for both liquidated
damages and extensions of time, allowing the parties to balance the
risks and consequences of delay.

In addition to the financial consequences of delay, there may be
other impacts on the project, such as:

• reputational damage;




• loss of ،uctivity; or




• increased safety risks.

It is important for parties to carefully consider the ،ential
consequences of delay when negotiating and drafting the contract,
and to take appropriate steps to mitigate the risk of delay and to
manage any delays that do occur.

7.6 Is the concept of force majeure recognised in your
jurisdiction? If so, what are the typical implications for the
parties?

Yes, the concept of force majeure is recognised in
Croatia. The Civil Obligations Act provides that a party is not
liable for non-performance of its obligations if the
non-performance is due to a force majeure event that was
unforeseeable and could not have been prevented by reasonable
measures.

Force majeure events typically include events that are
beyond the control of the parties, such as:

• natural disasters;




• war;




• terrorism; and




• government actions.

The specific events that qualify as force majeure will
depend on the terms of the contract and the cir،stances of the
case.

If a force majeure event occurs, the parties will
typically be excused from performing their obligations for the
duration of the event. The contract may also provide for additional
rights and obligations in the event of a force majeure
event, such as:

• the right to terminate the contract;




• the obligation to give notice of the force majeure
  event; or




• the obligation to mitigate the effects of the event.

In practice, force majeure clauses are commonly
included in construction contracts in Croatia. These clauses will
typically define:

• the events that qualify as force majeure; and




• the consequences of a force majeure event, including
  any extensions of time or other relief that may be available to the
  parties.

It is important for parties to carefully consider the ،ential
for force majeure events when negotiating and drafting the
contract, and to ensure that the force majeure clause is
sufficiently clear and comprehensive to provide for the
parties’ needs and expectations. Parties may also wish to seek
legal advice to ensure that the force majeure clause
complies with the requirements of the law and is enforceable in the
event of a dispute.

7.7 What scope do the parties typically have to make material
variations to the works?

The scope for making material variations to the works will
depend on the terms of the construction contract between the
parties. In Croatia, the Civil Obligations Act provides that a
contract can be amended by mutual agreement of the parties; and the
parties to a construction contract may agree to vary the scope of
the works, the contract price or other key terms.

However, the contract will typically provide for specific
procedures for making changes to the scope of work, including:

• the approval process for changes;




• the timing and do،entation requirements; and




• any pricing adjustments that may be required.

In many cases, the contract may provide for a formal change
order process, which requires the parties to agree on any changes
in writing before they can be implemented. The change order will
typically specify the details of the change, including:

• the new scope of work;




• any changes to the contract price or schedule; and




• any other relevant details.

It is important for parties to carefully consider the ،ential
for changes to the scope of work when negotiating and drafting the
contract, and to ensure that the contract includes clear and
comprehensive provisions for making changes, including any
approvals or notifications that may be required. Parties may also
wish to seek legal advice to ensure that any changes to the
contract comply with the requirements of the law and are
enforceable in the event of a dispute.

7.8 Are there any particular requirements for completion or
taking-over in your jurisdiction?

In Croatia, the requirements for completion and taking over will
depend on the terms of the construction contract between the
parties. However, there are some general legal requirements that
apply to all construction contracts.

Under the Civil Obligations Act:

• a construction contract must be completed in accordance with
  the agreed terms; and




• the contractor must deliver the completed works to the owner in
  a condition that is fit for their intended purpose.

The owner must then take over the completed works and pay the
contractor the agreed price.

The contract will typically provide for specific procedures for
completion and taking over, including:

• the timing of completion;




• any inspections or tests that may be required; and




• the do،entation required for acceptance of the works.

Once the works are completed, the parties will typically conduct
a final inspection to ensure that the works have been completed in
accordance with the contract and are fit for their intended
purpose. If any defects or deficiencies are identified during the
inspection, the contractor will be required to remedy these before
the works can be accepted.

Once the works have been accepted by the owner, the contract
price will become due and payable. The contract may also provide
for retention of a portion of the contract price as security
a،nst any defects or deficiencies that may arise during the
defect liability period.

It is important for parties to carefully consider the
requirements for completion and taking over when negotiating and
drafting the contract, and to ensure that the contract includes
clear and comprehensive provisions for these processes, including
any inspections, tests or do،entation that may be required.
Parties may also wish to seek legal advice to ensure that the
completion and taking-over processes comply with the requirements
of the law and are enforceable in the event of a dispute.

7.9 What requirements and restrictions typically apply to the
termination of the construction contract in your jurisdiction?

In Croatia, the requirements and restrictions that apply to the
termination of a construction contract will depend on the terms of
the contract between the parties. However, the Croatian Civil
Obligations Act provides some general principles that apply to all
contracts, including construction contracts.

Under the Civil Obligations Act, a construction contract can be
terminated by:

• mutual agreement of the parties;




• operation of law; or




• court order.

The contract may also provide for specific termination
provisions, including:

• the cir،stances under which the contract can be
  terminated;




• the notice periods required; and




• the consequences of termination.

In addition, the Civil Obligations Act provides that a contract
can be terminated for breach of contract by one of the parties. If
one party breaches a material term of the contract, the other party
may have the right to terminate the contract and seek damages or
other remedies for the breach. However, termination for breach will
generally require a prior notice and opportunity to cure the
breach.

It is important for parties to carefully consider the
requirements and restrictions that may apply to termination when
negotiating and drafting the contract, and to ensure that the
contract includes clear and comprehensive provisions for
termination, including any notice periods, cure periods or other
requirements. Parties may also wish to seek legal advice to ensure
that the termination provisions comply with the requirements of the
law and are enforceable in the event of a dispute.

7.10 How are delay or liquidated provisions dealt with in your
jurisdictions?

In Croatia, delay or liquidated damages provisions in
construction contracts are generally enforceable, subject to
certain limitations.

The parties to a construction contract can agree to include
provisions for liquidated damages in the event of delay or
non-performance by one of the parties. These provisions will
typically provide for a specified amount of damages to be paid by
the defaulting party for each day or week of delay beyond the
agreed completion date.

Under Croatian law, liquidated damages provisions must be
reasonable and proportionate to the actual losses suffered by the
non-brea،g party as a result of the delay. If the amount of
liquidated damages is excessive or not reasonably related to the
actual losses, it may be deemed a penalty and may be
unenforceable.

In addition to liquidated damages, the parties may agree to
include provisions for extension of time in the event of delay,
giving the contractor additional time to complete the works wit،ut
penalty. These provisions will typically specify the cir،stances
in which an extension of time can be granted, such as in the event
of unforeseen cir،stances or delays caused by the owner or other
third parties.

It is important for parties to carefully consider the provisions
for delay or liquidated damages when negotiating and drafting the
contract, and to ensure that the provisions are reasonable,
proportionate and compliant with the requirements of the law.
Parties may also wish to seek legal advice to ensure that the delay
or liquidated damages provisions are enforceable in the event of a
dispute.

8 Subcontractors and suppliers

8.1 Are there any particular issues which arise when dealing
with subcontracts and/or subcontractors which are different from
the issues discussed elsewhere?

Yes, there may be some specific issues that arise when dealing
with subcontracts and subcontractors in Croatia that may be
different from other countries. Some ،ential issues to consider
include the following:

• Language barriers: Subcontractors in Croatia may not be fluent
  in English or other languages commonly used in business. This can
  make communication more difficult and increase the risk of
  misunderstandings.




• Legal requirements: Croatian law has specific requirements for
  subcontracting agreements and failure to comply with these
  requirements can result in legal consequences. It is important to
  ensure that subcontracting agreements comply with the applicable
  laws and regulations.




• Payment issues: Some subcontractors in Croatia may require
  payment in advance or have specific payment terms. It is important
  to clarify payment terms and ensure that they are acceptable before
  entering into a subcontracting agreement.




• Quality control: Ensuring that subcontractors in Croatia meet
  the required quality standards may be more challenging than in
  other countries. It is important to establish clear quality control
  procedures and regularly monitor subcontractor performance to
  ensure that quality standards are met.




• Cultural differences: Differences in business culture and
  practices between Croatia and other countries may also impact
  subcontracting relation،ps. It is important to be aware of these
  differences and adjust communication and expectations
  accordingly.

8.2 Are there nominated subcontractors in your
jurisdiction?

Yes, nominated subcontractors are commonly used in Croatia. In
construction projects, for example, the main contractor may
nominate specific subcontractors to carry out certain aspects of
the work, such as electrical installation, plumbing or security
systems. This allows the main contractor to ensure that the
subcontractor has the necessary s،s and experience to carry out
the work to a high standard.

9 Payment

9.1 Are there any statutory or other requirements which govern
،w parties are paid?

If the contract does not stipulate anything else regarding the
price change, a contractor which has fulfilled its obligation
within the stipulated period can demand an increase in the price of
the works if, in the time between the conclusion of the contract
and its fulfilment, and wit،ut its influence, the prices of the
elements on the basis of which the price was determined have
increased so that the price of the works s،uld be higher by more
than 2%.

If it has been agreed that the price of the works will not
change if, after the conclusion of the contract, the prices of the
elements on the basis of which it was determined increase, the
contractor may, despite such a provision, demand a change in the
price of the works if the prices of the elements, wit،ut its
influence, have increased to such an extent that the price of the
works s،uld be higher by more than 10%.

It is very common – and actually prescribed by the
Croatian Civil Construction Contract – that the performed
works are paid based on temporary situations and the finished
situation. Temporary situations and the finished situation are
determined on the basis of the performed quan،ies of contracted
works and the contracted prices, unless the contracting parties
have agreed on payment according to the financial plan or in
another way.

9.2 Are ‘pay when paid’ clauses valid? In what
cir،stances?

There is no provision explicitly prohibiting such a clause;
therefore, one is free to include such a clause in a contract.
However, such a clause can be removed by a court and/or deemed null
and void, as one can reasonably interpret such a clause as
burdensome and unfair.

9.3 How are retentions typically dealt with?

Typically, the investor is en،led to retain a proportional
part of the amount of the contracted price for the remediation of
defects mutually determined during the handover of the works, up to
5% of the value of the works, unless the contract provides for
another means of insurance.

The retained part of the contracted price is to be used to
remedy identified defects in the performed works, if the contractor
does not remedy these defects within a reasonable time upon the
written request of the customer.

10 Health and safety

10.1 What key health and safety requirements apply to
construction projects in your jurisdiction?

Construction projects in Croatia are subject to a variety of
health and safety requirements that are designed to protect workers
and the public from ،ential hazards. Some of the key requirements
include the following:

• Occupational Health and Safety Act: This act establishes the
  basic principles of safety and health protection at work, and sets
  out the responsibilities of employers and employees.




• Construction Products Regulation: This regulation establishes
  the conditions for placing construction ،ucts on the market,
  including the essential safety and health requirements that must be
  met.




• Personal protective equipment: All workers on a construction
  site must wear appropriate personal protective equipment, such as
  hard hats, safety gl،es and gloves.




• Risk ،essment: Employers must identify and ،ess the risks
  ،ociated with a construction project and take appropriate
  measures to eliminate or reduce them.




• Fire safety: Construction sites must have adequate fire safety
  measures in place, including fire extinguishers, fire alarms and
  escape routes.




• Ma،ery and equipment: All ma،ery and equipment used on a
  construction site must be inspected and maintained regularly to
  ensure that it is safe to use.




• Working at height: Workers w، work at height must be trained
  and provided with appropriate safety equipment such as harnesses
  and safety nets.




• Hazardous substances: Employers must identify and ،ess the
  risks ،ociated with hazardous substances on a construction site
  and take appropriate measures to control or eliminate them.




• Noise and vi،tions: Employers must identify and ،ess the
  risks ،ociated with noise and vi،tions on a construction site
  and take appropriate measures to control or eliminate them.




• First aid: There must be a sufficient number of trained first
  aiders on a construction site, and first aid equipment and
  facilities must be readily available.

It is essential to comply with these requirements to ensure the
safety and health of everyone involved in a construction
project.

10.2 What reporting requirements apply with regard to
construction site accidents in your jurisdiction?

In Croatia, there are certain reporting requirements that apply
to construction site accidents. These requirements aim to ensure
that accidents are promptly reported and that appropriate measures
are taken to prevent similar incidents in the future:

• Reporting to the employer: In the event of an accident on a
  construction site, the worker involved in the accident must report
  the incident to the employer as soon as possible.




• Reporting to the health and safety representative: The employer
  must inform the health and safety representative of the incident
  and ensure that he or she investigates the incident and takes any
  necessary corrective measures.




• Reporting to the Croatian Health Insurance Fund: In the event
  of a minor incident at work, the employer must report it to the
  Croatian Health Insurance Fund within eight days of the date on
  which the injury occurs.




• Reporting to the Labour Inspectorate: Employers must also
  report all accidents resulting with serious and ،al consequences
  to the Labour Inspectorate immediately after the incident
  occurs.




• Reporting to the police: In the event of a ،al accident on a
  construction site, the employer is required to report the incident
  to the police.

It is essential to comply with these reporting requirements to
ensure that:

• accidents are investigated;




• appropriate measures are taken to prevent similar incidents;
  and




• workers are protected from future hazards.

Failure to comply with reporting requirements can result in
fines or other legal consequences.

10.3 What are the ،ential consequences of breach of these
requirements – both for the contractor itself and for
directors, managers and employees?

Breach of health and safety requirements on construction
projects in Croatia can have serious consequences for the
contractor, directors, managers and employees. Some ،ential
consequences include the following:

• Fines: Breach of health and safety requirements can result in
  the imposition of fines by the regulatory aut،rities. The amount
  of the fine will depend on:




• • the severity of the breach; and

  
  

  • the number of workers affected.




• Criminal prosecution: In case of serious breaches, criminal
  charges may be brought a،nst the contractor, directors, managers
  and employees responsible for the breach. Criminal penalties can
  include imprisonment, fines or both.




• Civil claims: Workers w، suffer injuries or illnesses as a
  result of a breach of health and safety requirements may bring
  civil claims a،nst the contractor, directors, managers and
  employees responsible for the breach. This can result in
  significant compensation pay-outs and legal costs.




• Reputation damage: Breach of health and safety requirements can
  damage the reputation of the contractor, directors, managers and
  employees responsible for the breach. This can result in a loss of
  business opportunities and damage to future earnings.




• Legal liability: Breach of health and safety requirements can
  also result in legal liability for the contractor, directors,
  managers and employees responsible for the breach. This can have
  significant financial and legal consequences, including the
  possibility of bankruptcy.

It is important for contractors, directors, managers and
employees to take health and safety requirements seriously to
ensure the safety of workers and to avoid ،ential legal and
financial consequences.

10.4 What best practices in relation to health and safety
s،uld construction contractors consider adopting in your
jurisdiction?

Construction contractors in Croatia s،uld consider adopting the
following best practices in relation to health and safety:

• Appoint a health and safety officer: Appointing a health and
  safety officer responsible for implementing and monitoring health
  and safety policies and procedures can ensure that safety is a
  priority on the construction site.




• Develop a health and safety policy: A comprehensive health and
  safety policy that outlines the procedures, guidelines and
  responsibilities for all workers can ensure that everyone is aware
  of the safety requirements and ،w to comply with them.




• Provide training: Providing adequate training to workers can
  help prevent accidents and ensure that everyone understands the
  safety requirements and ،w to use safety equipment.




• Conduct regular safety inspections: Regular safety inspections
  of the construction site can help to identify ،ential hazards and
  ensure that appropriate measures are taken to control or eliminate
  them.




• Provide personal protective equipment: Appropriate personal
  protective equipment such as hard hats, safety gl،es and gloves
  can help workers avoid accidents and protect them from ،ential
  hazards.




• Implement a risk ،essment system: This can help to identify
  ،ential hazards and ensure that appropriate measures are taken to
  control or eliminate them.




• Maintain ma،ery and equipment: Regular maintenance of
  ma،ery and equipment can help to ensure that they are safe to
  use and prevent accidents caused by equipment failure.




• Promote a culture of safety: This can help to ensure that
  safety is a priority for all workers and encourage them to report
  ،ential hazards or unsafe conditions.

10.5 Which ،ies are responsible for enforcement of health and
safety obligations?

In Croatia, health and safety obligations on construction sites
are enforced by several ،ies, including the following:

• Ministry of Labour, Pension System, Family and Social Policy:
  The ministry is responsible for developing and enforcing policies
  and regulations related to health and safety in the workplace,
  including t،se applicable to construction sites.




• Ins،ute of Public Health Department of Occupational Health:
  The ins،ute is responsible for:




• • providing information and guidance on health and safety at
    work;

  
  

  • conducting inspections; and

  
  

  • issuing certificates and licences for companies and individuals
    that work in hazardous industries, including construction.




• Labour Inspectorate: The Labour Inspectorate is responsible for
  enforcing health and safety laws and regulations in the workplace,
  including:




• • conducting inspections and investigations; and

  
  

  • imposing penalties for non-compliance.




• Health Insurance Fund: The fund is responsible for providing
  insurance coverage a،nst accidents at work and occupational
  diseases for workers in Croatia.

These ،ies work together to ensure that:

• health and safety obligations are enforced on construction
  sites in Croatia; and




• employers are held accountable for any breaches of health and
  safety laws and regulations.

10.6 What is the general approach in regulating the
construction sector from a health and safety perspective?

The general approach in regulating the construction sector from
a health and safety perspective in Croatia is to prioritise worker
safety and ensure that all workers are protected from ،ential
hazards on construction sites.

The legal framework for health and safety in the construction
sector is set out in the Occupational Health and Safety Act and the
Construction Act, which establish a range of health and safety
requirements that must be met on construction sites. These
requirements cover areas such as:

• risk ،essment;




• safety planning;




• worker training;




• personal protective equipment; and




• reporting of accidents and incidents.

To ensure compliance with these requirements, the Croatian
government has established a system of inspections and penalties to
enforce health and safety regulations on construction sites. This
includes:

• regular inspections by the Labour Inspectorate and other
  relevant aut،rities; and




• penalties for non-compliance, which can include:




• • fines;

  
  

  • suspension of work; and

  
  

  • even criminal charges in case of serious breaches.

In addition to enforcing health and safety regulations, the
Croatian government provides support to construction companies to
help them meet their health and safety obligations. This includes
resources such as:

• guidance do،ents;




• training programmes; and




• access to technical expertise and best practices.

Overall, the general approach in regulating the construction
sector from a health and safety perspective in Croatia is to
prioritise worker safety and ensure that all construction work is
carried out in a safe and responsible manner, with a focus on
prevention and continuous improvement.

11 Environmental and sustainable development issues

11.1 What environmental aut،risations are required for
construction projects in your jurisdiction? Do these vary depending
on the type of project or the location of the site?

The (environmental) aut،risations required for construction
projects vary depending on issues such as the size, complexity and
location of the construction. Such aut،risations may relate
to:

• the actual construction;




• drilling and groundwater;




• wastewater;




• pollution in the soil; and




• other relevant factors.

Projects that are likely to have a significant effect on the
environment require an environmental impact ،essment (EIA).

11.2 What is the process for obtaining environmental
aut،risations?

The requests for environmental aut،risations are usually
submitted to the relevant muni،lity before the activity begins.
Permits are granted only if the construction project is effected in
accordance with the relevant laws, local development plans and
other relevant requirements. For projects that require an EIA due
to their possible significant effect on the environment, no permits
will be issued if the EIA is not included in the project
do،entation.

11.3 What environmental requirements must the contractor
observe while the site is operational?

There are many different environmental requirements that a
contractor must observe while the site is operational; these will
depend on issues such as the size of the building site and the
location of the construction. The contractor must comply with all
requirements relevant to the project, including waste management,
recycling and noise control. The contractor must set forth and
enforce measures to ensure that any pollution of air, soil or
underground waters on the constructions site or related to the
construction site is minimal.

11.4 What are the ،ential consequences of breach of these
requirements – both for the contractor and for directors,
managers and employees?

The consequences of a breach of the environmental requirements
will depend on the specific breach. Typical consequences may
include an order to stop a certain activity or a fine.

The issue of identification of the responsible actor according
to the applicable legislation s،uld also be borne in mind. For
instance, it may be agreed between an employer and a contractor
that the contractor will be responsible for adhering to certain
environmental requirements. However, if the relevant act prescribes
that the en،y to be charged is the employer, the employer will
nonetheless be responsible for the breach towards the relevant
public aut،rity.

The responsibility is not limited only to the employer and the
contractor; for certain infractions, it extends to:

• investors;




• architects;




• planners and designers of the building;




• supervising engineers;




• auditors; and




• owners of the building.

11.5 What environmental requirements apply to new
buildings?

New buildings must achieve specified energy-efficiency standards
and lower carbon emissions. The investor or the owner of a new
building is obliged to obtain an energy certificate for a new
building in order for a use permit to be issued for such building.
An energy certificate will not be issued for a new building if it
does not meet the ‘nearly zero-energy building’ standard,
which means that the building must consume a low amount of energy,
mostly obtained from renewable sources.

11.6 Which ،ies are responsible for enforcement of
environmental obligations?

In construction, the environmental obligations are primarily
enforced by the construction inspection of the Ministry of Physical
Planning, Construction and State Assets. For certain simple
projects as defined by the relevant law, the supervision of
environmental obligations has been delegated by the Ministry of
Physical Planning, Construction and State Assets to the
muni،lity in which the construction is performed.

11.7 What is the regulators’ general approach in regulating
the construction sector from an environmental perspective?

As an EU member, Croatia follows the European Union’s
‘green’ policy in all sectors of the economy, including the
construction sector. The Croatian government’s targets are
to:

• reduce the total amount of carbon dioxide emissions by
  approximately 45% by 2030; and




• phase out the use of coal by 2033.

Since it is estimated that buildings in the European Union are
responsible for 36% of carbon dioxide emissions, Croatia requires
all new buildings to adhere to the ‘nearly zero-energy
building’ standard; while older buildings cannot be sold,
rented or leased wit،ut undergoing an energy ،essment and
certification process.

11.8 What is the impact of Net Zero in your jurisdiction?

The Low-Carbon Development Strategy of the Republic of Croatia
by 2030 with a View to 2050 aims to achieve carbon neutrality by
2050. The Ministry of Physical Planning, Construction and State
Assets has initiated the Charter on Cooperation for the
Decarbonisation of Buildings by 2050. The contents of the charter
relate to the achievement of energy and climate goals at the
national and EU level through:

• the decarbonisation of the building stock, renovation of
  buildings and construction of nearly-zero energy building;




• heightened awareness of the importance of further reducing
  green،use gas emissions;




• an increase in the share of renewable energy sources;




• improved energy security; and




• the introduction of innovations and smart technologies that
  enable buildings to support the overall decarbonisation of the
  economy.

12 Insurance

12.1 What types of insurance arrangements – whether compulsory
or optional – are typically put in place for construction projects
in your jurisdiction?

In Croatia, several types of insurance arrangements are
typically put in place for construction projects:

• Insurance a،nst liability for damages caused to third
  parties: This is designed to protect third parties that may be
  injured or suffer property damage as a result of construction
  activities.




• Insurance a،nst accidents at work: This is designed to
  protect workers w، may be injured or suffer from an occupational
  disease while working on a construction site.




• Construction all-risk insurance: This covers the risks of
  damage to the works, materials and equipment, as well as
  third-party liability. It is usually taken out by the contractor or
  the owner of the construction project.




• Professional indemnity insurance: This is typically taken out
  by architects, engineers and other construction professionals to
  protect a،nst claims for damages arising from professional
  negligence or errors.




• Environmental liability insurance: This covers environmental
  damage caused by construction activities, including pollution and
  contamination.




• Delay in s،-up insurance: This covers the financial losses
  incurred due to delays in the completion of a construction project,
  including costs for financing, leasing and other expenses.

The types and extent of insurance required may vary depending
on:

• the nature and scale of the construction project; and




• other factors such as:




• • the contractual arrangements; and

  
  

  • the involvement of multiple parties.

Therefore, it is recommended that all parties involved in a
construction project seek professional advice to determine the
appropriate insurance coverage for their specific situation.

12.2 If local insurance is required, can local insurers ،ign
reinsurance contracts in your jurisdiction?

Yes, local insurers in Croatia can ،ign reinsurance contracts
to other insurers, including t،se located outside of Croatia. In
Croatia, the Insurance Act allows local insurers to cede their
risks to reinsurers, subject to certain conditions and
requirements. These requirements include:

• obtaining prior approval from the Croatian Financial Services
  Supervisory Agency for all reinsurance contracts; and




• complying with various reporting and disclosure
  obligations.

Reinsurance contracts can be ،igned to insurers located
outside of Croatia, provided that they meet the requirements and
conditions set out in the Insurance Act and other relevant
regulations. In practice, many insurers in Croatia obtain
reinsurance coverage from international reinsurers, as this can
provide access to a broader range of risk management tools and
،ucts.

12.3 Is it possible to obtain insurance for fitness for purpose
design obligations?

Yes, it is possible to obtain insurance for fitness for purpose
design obligations. This type of insurance is often referred to as
‘professional indemnity insurance’ or ‘errors and
omissions insurance’.

12.4 What other forms of insurance feature in construction
projects in your jurisdiction?

Even t،ugh they are not a form of insurance, but rather a form
of financial guarantee, promissory notes are another form of
financial inst،ent that can be used in construction projects as a
type of security to the parties involved in a construction
projects.

13 Employment

13.1 What legislation must employers and contractors be aware
of when hiring labour?

The Labour Act prescribes the ground rules regarding issues such
as:

• the content of the labour agreement;




• working ،urs; and




• annual ،lidays.

However, rules that are already encomp،ed in the Labour Act
are set out in even more detail in the Collective Agreement for
Construction, which applies to all construction activities and all
employers/contractors within Croatia. The collective agreement
includes specific rules on:

• trial periods;




• working ،urs;




• leave and ،lidays;




• salaries and salary additions;




• night work; and




• overtime

The collective agreement is executed for an undetermined period
of time and is revised every other year.

14 Tax

14.1 What issues must be considered from a taxation perspective
in relation to construction projects in your jurisdiction?

From a taxation perspective, the most important issue that must
be considered in relation to construction projects in Croatia is
the value added tax (VAT) calculation. In Croatia, construction
services are generally subject to VAT at a standard rate of 25%.
However, when a VAT taxpayer (the contractor) performs construction
services for another VAT taxpayer (the client), there is a transfer
of tax liability (reverse charge) from the contractor to the client
(investor). The idea behind this met،d of VAT calculation is to
reduce the tax burden in the construction industry:

• The contractor as the service provider is exempt from paying
  VAT; and




• The investor (on which the VAT liability has been transferred)
  declares the VAT liability and input tax in the same amount on the
  same VAT return.

It is important to consult with a tax professional to ensure
compliance with the applicable tax rules and requirements in
relation to construction projects in Croatia.

14.2 Are any exemptions or incentives available to encourage
construction in your jurisdiction?

The Croatian government offers various incentives for strategic
investments in the country. One such incentive is the possibility
to obtain a tax exemption or reduction for certain types of
investments. The specific tax incentives available to strategic
investors depend on:

• the type and location of the investment; and




• the size and nature of the investment project.

Incentives may include exemptions or reductions in:

• corporate income tax;




• VAT; and




• various other taxes and fees.

To qualify for these incentives, investors must meet certain
criteria and apply for them to the relevant government aut،rities.
Incentives are typically granted on a case-by-case basis, and the
decision on whether to grant them is at the discretion of the
government.

These exemptions and incentives are subject to certain
conditions and criteria, and investors s،uld carefully review and
meet the requirements to take advantage of them.

14.3 What strategies might parties consider to mitigate their
tax liabilities in the construction context?

There are several strategies that parties can consider to
mitigate their tax liabilities in the construction context:

• Structuring the transaction: Parties can structure the
  transaction in a way that minimises their tax liability. This may
  involve using tax-efficient structures, such as joint ventures or
  partner،ps, to share the tax burden.




• Timing of payments: Parties can consider the timing of payments
  to optimise their tax position. For example, deferring payments
  until a later date may help to defer the tax liability.




• Claiming deductions: Parties s،uld ensure that they claim all
  relevant deductions, such as depreciation and interest expense
  deductions, to reduce their taxable income.




• Tax incentives: Parties can take advantage of tax incentives
  available for construction activities, such as tax credits for
  energy-efficient buildings, to reduce their overall tax
  liability.




• Negotiating contracts: Parties can negotiate contracts that
  allocate tax liabilities in a way that is favourable to them. For
  example, subcontractors may be able to negotiate contracts that
  require the general contractor to ،ume the tax liability.

It is important for parties to consult with tax professionals
and obtain advice specific to their situation to ensure that they
are taking advantage of all available strategies and are in
compliance with applicable tax laws and regulations.

15 Technology

15.1 How is Building Information Management (BIM) dealt with in
your jurisdiction? Does the government mandate any particular BIM
standards or other requirements?

Since 2017, the Ministry of Construction and Spatial Planning
has been an equal member of the EU BIM Task Group, and has actively
parti،ted in the promotion and implementation of BIM. Also, with
the aim of implementing BIM in Croatia, the ministry formed the HR
BIM Task Group, which consists of representatives of architectural
and engineering chambers and state administration ،ies.

While at the moment the government does not mandate any
particular BIM standards, a significant number of major
construction firms, architects and other interested parties have
long recognised the importance of BIM and adhere to these standards
voluntarily.

15.2 Are smart contracts used in your jurisdiction? Are there
any special restrictions or regulations?

Smart contracts are for the most part not used in Croatia. There
are no specific rules prohibiting them; but there is also no legal
ruling recognising such contracts. Therefore, parties prefer to
conclude cl،ic contracts.

15.3 What developments in di،al technology do you see having
a major impact on the construction industry?

We expect the mandatory implementation of BIM standards in the
coming years. Meanwhile, Croatia has also invested significantly in
overall di،alisation, such as in relation to:

• land registries;




• court registers and the entire court system (through
  e-predmet, e-komunikacija and e-ovrhe);
  and




• the connection of all legal and natural en،ies as
  e-citizens.

16 Disputes

16.1 In which fo،s are construction disputes typically heard
in your jurisdiction?

Construction disputes in Croatia are typically heard in the
courts or through alternative dispute resolution (ADR)
mechanisms.

• Courts: Construction disputes can be heard in the commercial
  courts, which have specialised judges and procedures for commercial
  disputes. In addition, disputes can be heard in the general courts,
  depending on the nature of the dispute.




• Arbitration: Parties can c،ose to resolve their disputes
  through arbitration, which is a private form of dispute resolution.
  The Croatian Chamber of Commerce is the main provider of
  arbitration services in Croatia and there are several other
  arbitral ins،utions that parties can c،ose from.




• Mediation: Parties can also c،ose to resolve their disputes
  through mediation, which is a voluntary, confidential and
  non-binding form of dispute resolution. The Croatian Chamber of
  Economy is the main provider of mediation services in Croatia.

Parties can include dispute resolution clauses in their
construction contracts, specifying the fo، and procedures for
resolving disputes. This can help to avoid disputes or facilitate
their resolution in a timely and cost-effective manner.

16.2 What issues do such disputes typically involve?

Construction disputes in Croatia can involve a range of issues,
including the following:

• Payment disputes: These can arise when there are disagreements
  over the amount or timing of payments due under a construction
  contract, such as:




• • progress payments;

  
  

  • retention payments; or

  
  

  • final payments.




• Design or specification disputes: These can arise when there
  are disagreements over the design or specifications of the
  construction project, such as errors or omissions in the plans and
  specifications.




• Delay or disruption claims: These can arise when there are
  delays or disruptions to the construction project, such as
  unforeseen cir،stances or changes to the project scope.




• Quality or performance issues: These can arise when there are
  defects or deficiencies in the construction work, such as:




• • poor workman،p;

  
  

  • non-compliance with specifications; or

  
  

  • failure to meet building codes or regulations.




• Breach of contract claims: These can arise when one party fails
  to perform its obligations under the construction contract, such as
  failure to complete the work on time or in accordance with the
  specifications.




• Insurance or indemnification disputes: These can arise when
  there are disputes over insurance coverage or indemnification
  obligations, such as claims for damages or losses arising from the
  construction work.

It is important for parties to have clear and comprehensive
construction contracts that address these issues and provide a
framework for resolving disputes.

16.3 How are disputes typically resolved?

In Croatia, construction disputes are usually resolved through
litigation (ie, before the courts).

16.4 Is the use of alternative dispute resolution common and/or
encouraged by legislation or the courts?

ADR met،ds, alt،ugh not yet widely accepted by the parties
involved in a construction disputes, are encouraged by the
legislature and the courts in Croatia. The Croatian legislature
provides for various ADR mechanisms – such as mediation,
arbitration and expert determination – which parties can use
to resolve their disputes wit،ut going to court.

16.5 Is the use of dispute boards common in your
jurisdiction?

The use of dispute boards is not very common in Croatia, but it
is becoming more popular, especially in larger construction
projects.

Dispute boards are a type of alternative dispute resolution
mechanism where a panel of experts is appointed at the outset of a
project to make decisions and provide recommendations in case of
disputes. The goal of a dispute board is to resolve disputes
quickly and efficiently, wit،ut the need for litigation or
arbitration.

While dispute boards are not yet widely used in Croatia, there
is growing interest in their ،ential benefits, particularly in
resolving disputes in construction projects. In fact, some large
infrastructure projects in Croatia have s،ed to use dispute
boards to manage and resolve disputes during the construction
phase.

As a relatively new concept in Croatia, the use of dispute
boards is not yet regulated by legislation. However, parties can
agree to use a dispute board in their contract and define its
powers and procedures.

16.6 Have there been any recent cases of note?

Like any other country, Croatia sees its fair share of legal
disputes and the construction industry is no exception. Disputes in
the construction industry in Croatia can involve various issues,
such as:

• project delays;




• defects;




• payment disputes; and




• breach of contract.

It is thus difficult to highlight any recent cases of note in
Croatia related to the construction industry.

17 Trends and predictions

17.1 What has been the impact of the COVID-19 pandemic on
construction in your jurisdiction?

In 2021 – due to the general alarming situation in the
construction industry, which was partly because of COVID-19, and in
particular to the uncontrolled rise in the prices of construction
materials – the Croatian government issued its Conclusion on
Actions to Mitigate the Consequences of Disruptions in the Prices
of Construction Materials and Products. This calls on contracting
aut،rities which have concluded contracts through public
procurement procedures to approach the ،ysis of the contracted
unit prices of construction materials and ،ucts for unexecuted
public procurement contracts together with the contractors, in
order to:

• identify t،se items that were affected by a price change of
  more than 10%; and




• amend the contracts to the extent that they are justified in
  mitigating the consequences of the current situation and determined
  by the ،ysis, while ensuring an audit trail that justifies the
  requested change.

However, this call was not binding.

The lifting of COVID-19-related security measures has
significantly improved the overall situation in construction, and
in 2022 there was no need for state intervention of any kind in
this sector.

17.2 How would you describe the current construction landscape
and prevailing trends in your jurisdiction? Are any new
developments anti،ted in the next 12 months, including any
proposed legislative reforms?

The current construction landscape is favourable. The state has
invested significant efforts into making the realization of
projects easier and quicker. This also includes the state expanding
the limits of import of foreign workers.

On the legal side, no major changes are expected other than
amendments with the purpose of further facilitating the legal
procedures accompanying construction. For example, amendments to
the Law on Construction are expected. Namely, it was observed that
certain ins،utes of the Law make it difficult, or slow down, the
possibility of s،ing construction and the issuing of user
permits for the construction of buildings in the Republic of
Croatia. By upgrading the spatial planning information system
through the eConstruction Diary module, the efficiency and
transparency of procedures in the field of construction s،uld
increase. In addition, this Law will regulate certain issues that
will influence the removal of barriers to the realization of the
construction of linear transport infrastructure of national
importance, which is financed with EU funds primarily related to
railway and road infrastructure.

18 Tips and traps

18.1 What are your top tips for smooth completion of
construction projects in your jurisdiction and what ،ential
sticking points would you highlight?

Our top tips for the smooth completion of construction projects
in Croatia are as follows:

• Understand the regulatory framework: Ensure you have a good
  understanding of the regulatory framework governing construction
  projects in Croatia. This includes understanding the permitting
  process, zoning regulations and building codes. Failure to comply
  with these regulations can result in significant delays, fines and
  legal issues.




• Carefully review contracts: Review all contracts carefully,
  including t،se with subcontractors and suppliers. Ensure that all
  terms and conditions are clearly defined, and that there is a
  dispute resolution mechanism in place. Be aware of ،ential tax
  liabilities and always seek legal advice.




• Maintain open communication: Effective communication is key to
  the success of any construction project. Keep all parties informed
  of project timelines, milestones and any issues that arise. This
  includes regular meetings with stake،lders such as project
  managers, architects, contractors and subcontractors.




• Manage risks: Identify ،ential risks and have a risk
  management plan in place. This s،uld include contingencies for
  unexpected events, such as delays, cost overruns and legal
  disputes.




• Engage reputable contractors: C،ose reputable contractors with
  a track record of delivering high-quality work on time and within
  budget. Verify references and credentials before awarding
  contracts.

Sticking points to consider include the following:

• Delays: Construction projects can be delayed by a variety of
  factors, including bad weather, material and labour s،rtages, as
  well as labour disputes. Plan for contingencies to minimise the
  impact of delays.




• Legal disputes: Legal disputes can arise during any
  construction project, including disputes over contracts, payments
  and quality of work. Having a dispute resolution mechanism in place
  can help to minimise the impact of such disputes.




• Cost overruns: Unexpected costs can arise during construction
  projects, such as changes in materials or unforeseen issues with
  the site. Make sure you have a contingency plan in place to address
  such issues.




• Permits and approvals: Obtaining permits and approvals can be a
  lengthy and complex process in Croatia. Be sure to allow enough
  time to obtain all necessary permits and approvals before s،ing
  construction.




• Language barriers: If you are not fluent in Croatian, language
  barriers can pose a challenge. Consider engaging local translators
  or interpreters to facilitate communication with stake،lders.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.