MONTENEGRO Law and Practice Contributed by: Milan Keker, Aleksandra Bujkovic, Ivan Pejovic and Iva Rolovic, Keker, Bujkovic & Pejovic
7. Construction 7.1 Common Structures Used to Price Construction Projects The dominant pricing model in construction projects is the fixed price contract – ie, “turnkey” contracts, where the total cost is agreed in advance. It offers clarity and cost certainty, making it the preferred structure in most developments, especially when pro - ject documentation is complete and detailed. Cost-plus contracts are used in more complex or uncertain projects where exact scope and duration are hard to define. A unit price contract involves pricing specific types of work per unit (eg, per cubic metre or square metre), with the final cost determined by actual quantities executed. The choice of pricing structure depends on the project’s complexity, the clarity of documentation and how risk is allocated between the parties. 7.2 Assigning Responsibility for the Design and Construction of a Project The contractor who builds a structure is liable for any serious defects related to the construction itself – especially those affecting the building’s structural integrity – for a period of ten years from the moment the works are completed and formally handed over. This ten-year liability also includes issues that might arise from the land on which the building was con - structed, unless a specialised expert organisation had confirmed the land was suitable for construction and no warning signs appeared during the works. Importantly, if the defect originates from the design or project documentation, the designer (ie, the architect or engineer) shares the same liability as the contractor. Both the contractor and the designer are responsible not only to the original client who commissioned the works but also to any future owner of the property. Finally, this legal responsibility cannot be waived or limited by contract – it is mandatory and protects all owners during that ten-year period. When both the contractor and the designer are liable for damage, their individual responsibility is deter -
mined in proportion to their respective fault. If the designer was also responsible for supervising the con - struction, they may be held liable for defects caused by the contractor if such defects could have been noticed through normal and reasonable supervision. In such cases, the designer may seek reimbursement from the contractor. Likewise, a contractor who com - pensates for damage caused by construction defects originating from design flaws may recover that amount from the designer to the extent of their responsibility. If a subcontractor is at fault, the main contractor must notify them within two months of being informed of the defect by the client, in order to preserve the right to claim compensation. 7.3 Management of Construction Risk Construction risk is typically managed through a combination of practical and financial instruments. Appointing a licensed construction supervisor is key, as they monitor compliance with the design and tech - nical regulations and help prevent costly errors. Contractors are usually required to have profession - al liability insurance, which covers risks related to defects or non-performance. It is also standard prac - tice for contractors to provide bank guarantees – such as a performance guarantee and a warranty guarantee – to secure proper execution of works and remedy of any defects during the warranty period. 7.4 Management of Schedule-Related Risk Schedule-related risk in construction projects is typi - cally managed through contractual penalty clauses for delays. Construction contracts commonly include provisions that impose penalties for missing the final completion date, as well as for failing to meet specific interim milestones. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Project owners commonly require additional secu - rity to ensure contractor performance, particularly on high-value or technically complex developments. The most commonly used instruments include perfor - mance bonds, letters of credit and parent company guarantees. The need for such security is assessed based on the project’s size, complexity and the con - tractor’s financial standing.
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