If you are commissioning building works in Montenegro, the contract you sign with the contractor is not the whole of your legal position. The Zakon o obligacionim odnosima (Službeni list Crne Gore nos. 047/08, 004/11 and 022/17) devotes a chapter to the construction contract, and several of its rules override what the parties wrote.
Three of them decide most disputes. A fixed price is not fixed above a statutory threshold. A delay penalty is lost if you take the building without saying one sentence. And the ten-year liability for structural soundness cannot be contracted away by anyone.
The contract, and the penalty, must be in writing
Article 699(1) defines the ugovor o građenju: the contractor undertakes to build a defined structure on defined land, to a defined design and within an agreed deadline, and the employer undertakes to pay a defined price. Article 699(2) requires it to be concluded in written form.
That form requirement reaches further than the contract itself. Article 278(2) provides that a contractual penalty must be agreed in the form prescribed for the contract from which the secured obligation arises. A construction contract must be in writing, so a delay penalty agreed by email exchange, site minutes or handshake is not agreed at all.
Article 700 defines what counts as a građevina here — buildings, dams, bridges, tunnels, water mains, sewers, roads, railways, wells and other structures whose execution requires larger and more complex works. Smaller works fall back into the general contract-for-work rules.
A fixed price is fixed only up to 10%
This is the provision most foreign employers are surprised by, and it sits three articles deep.
Article 704 allows the price to be set either per unit of measure or as a total agreed price for the whole object. Article 705 then gives the contractor a statutory escalation right: where element prices rise between signature and performance so that the price ought to be higher by more than 2%, a contractor who performed within the deadline may claim the excess over 2%. A contractor in culpable delay faces a 5% threshold measured to the contractual completion date, and under Article 705(4) cannot invoke increases arising after it fell into default.
Now the clause everyone relies on. Article 706(1): even where the parties agreed the price will not change, the contractor may still demand a change if element prices rose so much that the price ought to be higher by more than 10% — and under 706(2) may claim only the excess over 10%, and not where the rise came after its own default.
| Price mechanism | Threshold before a claim arises | Provision |
|---|---|---|
| Contractor performed on time, no fixed-price clause | Above 2% | Art. 705(1) |
| Contractor in culpable delay, no fixed-price clause | Above 5% | Art. 705(2) |
| Fixed-price clause agreed | Above 10% | Art. 706(1) |
| Increase arising after the contractor's default | No claim | Art. 705(4), Art. 706(2) |
| Employer's reduction, works on time | Above 2% | Art. 708(1) |
| Employer's reduction, fixed-price clause | Above 10% | Art. 708(2) |
| Employer's reduction during contractor's delay | Every fall, proportionate | Art. 708(3) |
Article 708 is the half nobody quotes: escalation runs both ways, and under Article 708(3), where the contractor is in delay, the employer gets a proportionate reduction for every fall in element prices, with no threshold at all.
Article 707 gives the employer an exit: if the agreed price would have to be significantly increased under Articles 705 or 706, the employer may rescind, paying for works already done plus fair compensation for necessary costs incurred.
Turnkey is the clause that actually moves risk
If you want price certainty, the statute offers one instrument that delivers it, and it is not the words "fixed price".
Article 709(1): where the contract contains the clause "ključ u ruke" — turnkey — or a similar clause, the contractor independently undertakes to carry out all works necessary for the construction and use of a complete object. Article 709(2): the agreed price then includes the value of all unforeseen works and all excess works, and excludes the effect of shortfalls on the agreed price. Article 709(3): where several contractors are parties to a turnkey contract, their liability to the employer is joint and several.
That is a materially different allocation from a lump sum with an escalation clause attached — and it is why turnkey pricing is higher: the contractor is pricing the unforeseen works Article 703 would otherwise let it charge for.
Variations: no written consent, no extra money
Article 702(1) requires the contractor to hold the employer's written consent for every deviation from the construction design or the agreed works. Article 702(2) supplies the sanction: the contractor cannot claim an increase in the agreed price for works it carried out without that consent. For an employer, the discipline is simple — variation instructions go in writing, and unwritten site instructions are not a payment obligation.
Article 703 carves out urgent unforeseen works, which the contractor may carry out without prior consent where urgency made consent impossible. It defines them narrowly: works necessary to secure the object's stability, to prevent danger to life and health, the environment or property, or to prevent damage, and caused by unexpectedly difficult ground, an unexpected appearance of water, or other extraordinary and unexpected events. The contractor must notify without delay (703(3)) and has a right to fair compensation (703(4)); if the price would rise significantly the employer may rescind (703(5)).
The delay penalty: five rules that decide whether you collect
A liquidated-damages clause in Montenegro is an ugovorna kazna under Articles 277 to 283, and it behaves differently from the common-law instrument.
It is presumed to be for delay. Under Article 277(2), a penalty is taken to be agreed for the case of late performance unless something else follows from the contract. Article 278(1) lets the parties set it as a lump sum, a percentage, per day of delay, or otherwise.
It cannot secure a money debt. Article 277(3) prohibits a contractual penalty for monetary obligations. An employer cannot have the contractor penalise its late payments through this instrument, and vice versa — late payment is the domain of default interest under Article 284.
It dies if the delay is not the contractor's fault. Article 279(2): the penalty agreement loses legal effect where the non-performance or delay arose from a cause for which the debtor is not liable. Employer-caused delay, and genuine force majeure, take the penalty with them.
For delay, you keep both remedies — Article 280(4) allows the creditor to demand both performance and the penalty. But Article 280(1) to (3) work differently where the penalty was agreed for non-performance: there the creditor chooses between performance and the penalty, and loses the right to demand performance once it has claimed the penalty.
🔴 And it evaporates on a silent handover. Article 280(5) is the provision that costs employers the most money: the creditor cannot claim the delay penalty if it accepted performance and did not, without delay, tell the debtor that it reserves its right to the penalty. Months of accrued penalty can be extinguished by signing an acceptance record without one reserving sentence.
| Rule | Effect | Provision |
|---|---|---|
| Presumption | Penalty is for delay unless the contract says otherwise | Art. 277(2) |
| Money debts | Penalty cannot be agreed for monetary obligations | Art. 277(3) |
| Form | Must be agreed in the form required for the contract, so in writing | Art. 278(2) |
| Contractor not at fault | Penalty agreement loses effect | Art. 279(2) |
| Delay penalty | Performance and penalty may both be demanded | Art. 280(4) |
| Acceptance without reservation | Right to the accrued penalty is lost | Art. 280(5) |
| Excessive penalty | Court reduces it on the debtor's request | Art. 281 |
| Penalty below the loss | Difference recoverable up to full compensation | Art. 282(2) |
Two more. Article 281: the court will reduce the penalty on the debtor's request if it finds it excessively large compared with the damage suffered — an aggressive daily rate is not a safe way to buy certainty. Article 282: conversely the creditor may claim the penalty even where it exceeds the damage, or where no damage at all was suffered, and may claim the difference up to full compensation where the loss is greater.
Supervision is your statutory right, and your cost
Article 701 of the Obligations Act obliges the contractor to enable the employer continuous supervision over the works and control of the quantity and quality of the materials used. That right does not depend on a contract clause.
The Zakon o izgradnji objekata (Sl. list CG 019/25 and 092/25) then makes professional supervision a duty rather than an option. The investor must ensure the mandatory presence of the stručni nadzor by construction phase, and the investor bears its cost (Art. 50). Under Article 51, the supervisor records observations in the construction diary (građevinski dnevnik), must without delay and in writing notify the investor where works depart from the revised main project, the Act or special regulations, and may order the contractor to remedy within a set period; if the contractor does not remedy, the supervisor must report it to the building inspector without delay. Article 52 requires supervision reports by phase and a final report.
Read commercially, the supervisor is not only quality control: its diary and written notices are the contemporaneous record that decides a later delay or defect argument. The permitting chain those reports feed into is in our building permit guide.
Handover — and the deemed-handover trap
Article 63 of the Construction Act sets the sequence: the investor and contractor must carry out handover and the final settlement of the value of the works within 60 days of receipt of the use permit, unless the contract provides otherwise, with final handover within 30 days of expiry of the warranty period for finishing works.
Then the trap: if the investor puts the object, or part of it, into use before handover, handover is deemed to have been carried out. Occupying a wing early, or opening one floor of a hotel for a season, can convert an unresolved snagging position into a completed handover by operation of law. Read that provision alongside Article 280(5) before anyone takes keys. The acceptance stage itself is covered in our use permit guide.
The ten-year liability nobody can contract out of
Article 712(1): the contractor is liable for defects in the construction concerning its solidity which appear within ten years of handover and acceptance of the works. Article 712(2) extends that to defects in the land on which the structure was raised, within the same ten years, unless a specialised organisation gave an expert opinion that the land was suitable for building and no circumstances arose during construction casting doubt on that opinion. Article 712(3) applies the same liability to the designer where the defect stems from a defect in the plan.
🔴 Article 712(4): the contractor and the designer are liable to the employer and to every other acquirer of the structure, and their liability can neither be excluded nor limited by contract. A liability cap in a Montenegrin construction contract does not reach this.
The employer's own discipline is tight. Article 713(1): the employer or other acquirer must notify the contractor and the designer of the defect within six months of establishing it, or loses the right to rely on it. Article 713(2): the right then expires one year from the day of that notification. Two short clocks sit behind a ten-year liability, and most claims are lost on the clocks rather than on the merits.
Article 714 matters to both sides: the contractor is not released because it acted on the employer's instructions, but where it warned the employer of the risk of damage before performing the work, its liability is reduced and may, depending on the circumstances, be excluded. That is a written-warning discipline, and it belongs in the site correspondence.
Article 715 allocates the rest: contractor and designer each answer according to the degree of their fault; a designer who also supervises is liable for defects caused by the contractor if it could have noticed them through normal and reasonable supervision, with recourse; and a contractor claiming against a subcontractor must notify it within two months of being notified by the employer. Article 711: rights for defects pass to later acquirers, but no fresh notice or limitation period starts — the acquirer inherits its predecessor's remaining time.
Scope, and what is not here
This page covers the contract between the party commissioning the works and the contractor. It does not cover the buyer's position against a developer, which runs on different instruments — see our off-plan instalments and escrow guide and, where the developer fails, our developer insolvency guide. Where the dispute is decided is in our arbitration or court guide.
Warranty periods for finishing works are set by contract and subordinate regulation rather than by a single figure in the Obligations Act, so no minimum period is stated here. The Act was read in the consolidated text covering Sl. list CG 047/08, 004/11 and 022/17; later amending acts concern other chapters and none of the provisions cited above. Checked on 26 August 2026.
Before you sign the works contract
Five clauses carry most of the risk, and all five are decided at signature. Is the price a unit price, a lump sum, or genuinely turnkey under Article 709 — because only the third absorbs unforeseen works? Does the contract exclude the Article 705 and 706 escalation, and does it also exclude the Article 708 reduction that runs your way? Is the delay penalty expressed per day, in writing, and tied to a completion date that survives extensions of time? Does your handover protocol require a written reservation of accrued penalties under Article 280(5)? And does anyone on your side know that the Article 713 clock starts running six months from the day a defect is established, not from the day it is convenient to raise it?
Send us the draft works contract, the programme and the supervision appointment before signature, and we will tell you which clauses the statute will override and which risks are still open to negotiation. This work sits in our construction advisory practice, and connects to hotel investment where the works form part of a hotel structure examined in our guide to the two statutory hotel models.
