73 DIGNITAS n Construction Contract Abstr Act t he article describes the construction contract in slovenian law (Articles 649 – 665 Obligations code). A construction con- tract is a version of a contract to produce a work whose rules also apply to the construction contract. t he provisions, valid only for a construction contract, refer to definition of a construction contract, the unforeseen works and change in prices if the basis for the calculation of prices has changed. both the definition of a construction contract and details on change in prices are deemed unclear and ambiguous. r ules on material defects, warranty peri- ods, the customer’s duties to examine and notify material defects but also customer’s rights in a case of a material defect described in detail. t he customer’s rights are deemed imbalanced to the detriment of the customer. Keywords: slovenian law – construction contract – contract to produce a work – unforeseen works – change in prices of ele- ments on which the price was based – material defects – apparent and concealed material defects – warranty period – examination and notification of material defects - customer’s rights in the case of defects – remedy of the defect – abatement of price – rescis- sion of a contract – claim for damages Gradbena pogodba POvzetek Članek opisuje gradbeno pogodbo po slovenskem pravu (649. do 665. Člen Obligacijskega zakonika). Gradbena pogodba je va- rianta podjemne pogodbe, katere pravila se uporabljajo tudi za c onstruction c ontract Marko Brus 74 DIGNITAS n Contract Law gradbeno pogodbo. Določbe, veljavne le za gradbeno pogodbo, se nanašajo na opredelitev gradbene pogodbe, nepredvidena dela in spremembo cen, če se je spremenil temelj za kalkulacijo cen. t ako definicija gradbene pogodbe kot tudi podrobnosti o spremembi cen so nejasni in dvoumni. Pravila o stvarnih napa- kah, jamčevalnih rokih, naročnikovih dolžnosti pregleda in notifi- kacije stvarnih napak, vendar tudi naročnikove pravice v primeru stvarne napake so opisane podrobno. Naročnikove pravice v pri- merjavi s podjemnikovimi pravicami so urejene neuravnoteženo v naročnikovo škodo. Ključne besede: slovensko pravo – gradbena pogodba – pod- jemna pogodba – nepredvidena dela – sprememba cene elemen- tov, na katerih temelji cena – stvarne napake – očitna in skrita stvarna napaka – jamčevalni rok – pregled in notifikacija stvarnih napak – naročnikove pravice v primeru napak – odprava napake – znižanje cene – odstop od pogodbe – zahtevek za povrnitev škode t he purpose of this article is to describe the main features of the construction contract in slovenian law. t he provisions on construction contract and the related contract to produce a work are basically unaltered since 1978. On the one hand, literature on the construction contract is scarce. On the other hand, the num- ber of court decisions is sizeable, which shows the great signifi- cance of the construction contract. A construction contract is defined as a contract to produce a work whereby the contractor undertakes to construct, accord- ing to a specified plan and within an agreed time limit, a specific construction on a specific piece of land or to carry out other construction work on such land or on an existing building. t he contractor undertakes to pay him a specified price (Article 649(1) Obligations c ode). A construction is deemed a construction work only if it re- quires major and complex works. examples of constructions are buildings, dams, bridges, tunnels, waterworks, sewers, roads, rail- ways, and wells (Article 650(1) Obligations code). Other con- struction works are works on land. t he construction contract itself is a contract to produce a work. t he rules on contract to produce a work therefore also apply to the construction contract. Article 660 specifically, but unnecessar- 75 DIGNITAS n Construction Contract ily, provides for this regarding the rules on liability for material defects under a contract to produce a work. t he basic law on contracts is the Obligations code. t he con- struction contract is regulated in c hapter 12 of the special Part of the Obligations c ode, Articles 649 to 665. t he contract to produce a work is regulated in c hapter 11 of the special Part of the Obligations c ode. Its regulation is relatively comprehensive. It covers all possible aspects that could arise in connection with this type of contract. t he chapter on the con- struction contract, however, is structured differently. It deals only with all the ways in which a construction contract differs from a contract to produce a work. For the sake of simplicity, it can be said that the focus of the regulation of the construction contract is on its definition, the rules on change in prices and the rules on liability for defects. All references to articles in the following will therefore refer to the Obligations c ode. As all references to articles refer to the Obligations c ode, the specific references to it will be omitted, as they are not necessary for understanding of this article. 1. Characteristics of the construction contract t he contractor undertakes in the construction contract »to carry out ... the construction works«. He owes performance, i.e., success. t he risk of failure is normally borne by the contractor. t his is settled case-law e.g., c A vs L I c pg 1444/2010, c A vs L I c p 761/2009. t here is no difference in principle in this respect com- pared to a contract to produce a work. t he contractor shall not be bound to use any particular means or method to achieve success, unless otherwise agreed. t he choice of means and method is his unless he has bound himself by the contract to use a particular means or methods. t his affects both the performance of the works and the claim for remedy of defects. It is typical of a construction contract that the contractor will have to carry out several different works. t he Obligations c ode mentions this in several places. Article 650, in defining structures, provides that a construction must require major and complex works. In regulating the price, the Obligations c ode (Articles 654 76 DIGNITAS n Contract Law and 659) assumes that the contractor will carry out the »agreed works«, i.e., not just one work, and specifies certain ways of agree- ing on the price. t he construction contract is therefore a complex contract in its content. t he contractor must build »according to the plan«. It is not the contractor’s duty to provide a plan; it is the obligation of the customer. t he Obligations c ode does not otherwise provide for anything with respect to a plan. It can therefore be notified orally or in writing, and it can be very general or precise. t he contractor undertakes to build »within a time limit«. t he works are carried out over a period of time, in exceptional cases years or even longer. t he conclusion of a construction contract establishes a continuing obligation which is limited by a time limit. While this conclusion may be drawn directly from the defi- nition of the construction contract itself, no further norms of the Obligations code have been provided for this specific situation. so, for example, if a party decides to rescind a construction con- tract, the contract becomes invalid ex tunc which is highly imprac- tical, and not ex nunc. t here are two real difficulties in applying the rules on con- struction contracts. t he first is how to distinguish a construction contract from a contract to produce a work? t he second is how to interpret the requirement for a construction contract to be in writing. A construction contract is merely a type of contract to produce a work. t he definition of a construction contract already says so. After all, any construction work is - a work. t he similarity between both types of contracts is apparent. For a construction contract, the contractor must carry out the construction work. If the construction work is »construction«, such construction work must be »major and complex«. t his is where a contract to produce a work differs from a construction contract. However, such a criterion of distinction is unclear. t he delimi- tation between a contract to produce a work and a construction contract is therefore often only uncertain and inconclusive. In only one case to date has the supreme c ourt of the r epublic of slovenia attempted to distinguish a contract to produce a work from a construction contract in a general and abstract way. A con- struction contract is characterised by larger and more complex 77 DIGNITAS n Construction Contract works requiring a greater number of contractors, preparations, a building permit, a project (sc vsrs III Ips 11/93). However, even this attempt at delimitation does not lead to a conclusive delimita- tion of the two types of contracts. However, there are several court decisions on the question of whether a contract to produce a work or a construction contract should have been concluded. For example, if the contractor owes to renovate the roof (c A vs L I cpg 13/2013) or reconstruct the building and carry out maintenance work, e. g. on mechanical installations (c A vs L I c p 3442/2010), the contract is not a construction contract. However, it is still not a construction contract if the contractor is obliged to install equipment in an existing building (cA vs vs L I cpg 796/2012), to build a porch (cA vs M I cp 1170/2009), to trans- port and install asphalt (c A vs L I c pg 733/2011), to lay out an ac- cess road and yard (c A vs L II c p 2526/2009), to lay an in-ground water pipeline (cA vsk cpg 165/2012), and to asphalt the yard (c A vs L II c p 105/2012). In some of these decisions, the court’s decision is relatively understandable. both the transport and in- stallation of asphalt and the asphalting of the yard are not particu- larly complex works. However, in some of the other decisions cited here, it is not so clear why a contract to produce a work rather than construction contract was concluded. Performing a construction work can be challenging because it might be interdependent with the other works and there may be many of them. t hese works need to be coordinated with each other. even though individual works may be simple in them- selves, their coordination can be challenging both technically and in terms of time. Installing screed is not particularly difficult, but before that, for example, electrical wiring, plumbing and central heating must be laid. In such cases, the question naturally arises as to whether the contract is a construction contract or a contract to produce a work. t he courts generally rule that it is not a construction contract, but they have not gone into the question if the complexity of the works does not qualify a contract as a construction contract either. In one case, the court held that there was no construction contract even when a series of construction works had to be car- ried out: laying boards on the existing roof, replacing the roof- ing, building up the porch, insulating the slab with screed, install- 78 DIGNITAS n Contract Law ing windows, extending the roof over the porch, building an air bridge over the entire roof, replacing gutters, wind and chimney trimmings and building a carport (c A vs M I c pg 345/2012; simi- larly in c A vs L II c p 195/2012). Article 649(2) expressly provides that a construction contract must be in writing. t his is a second fundamental problem with the definition of a construction contract. However, the legal con- sequences are not specified. It could be inferred from the word- ing that a construction contract not concluded in writing is null and void. However, there are already court decisions which have ruled that such a contract is valid (sc vsrs , III Ips 15/2015, cA vs L I c p 481/2014). t he justifications of what is actually a quite important interpretation of one of the features of a construction contract is extremely short. t he supreme c ourt believes that the written form is provided “for the sake of protection of interest of parties and for ease of evidence”. No further justifications were provided. In c A vs L I c p 481/2014 the court stated that the writ- ten form is not a prerequisite for validity and that its purpose is solely to keep the evidence of conclusion of the contract and its provisions. Again, no further, more elaborate justification has been provided. 2. The customer’s instructions and the unforeseen works t he customer may give instructions to the contractor (Article 622). While Article 622 uses the term »instructions«, Article 664(1) uses the term »request of the customer«. t here is no substantive difference between the two terms. t he right to give instructions does not entitle the customer to modify the construction contract unilaterally. He may, by means of its instructions, merely give more precise information on how the contractor must carry out the works unless otherwise provided for by a construction con- tract itself. t he type and quantity of work due is determined by the con- tract. However, it is common in construction to add some works that should be carried out by the contractor or omit the others. In addition, there are almost inevitable deviations from the quan- tity of work carried out from the plan which is submitted by the customer. 79 DIGNITAS n Construction Contract t he reasons for this are manifold. During construction, it often becomes apparent that a work needs to be carried out which was not foreseen in the construction contract. t his may be because a particular type of work was inadvertently omitted when the con- struction contract was drawn up. such work is necessary but has been overlooked. It is also possible that, during construction, additional work may have become necessary due to unforeseen circumstances. For example, when excavating a construction pit, the walls of the pit start to slide unexpectedly. As the plan did not foresee this, the construction contract did not provide for any work that should be done to consolidate the pit, nor the price for such a work. t here- fore, since the circumstances are different from those envisaged in the construction contract, the walls of the construction pit must be consolidated. t his is then additional work. It may also be necessary to increase the quantity of the work which is stipulated in the contract. For example, in the case of construction, it may be necessary to build a substantially more massive foundation due to the nature of the land. For example, the use of concrete and concrete reinforcement will be greater. t he scope of the work due may also be altered by subsequent orders from the customer to carry out work that was not stipu- lated in the construction contract itself nor were such works over- seen or necessary. All additional works have a common characteristic: they were not stipulated in the contract. t hey have not been foreseen in it. t here are several issues to be addressed in relation to unfore- seen works. Firstly, it must be settled whether the customer’s con- sent is required. t hen it must be settled whether the contractor is entitled to additional payment. If he is entitled to additional pay- ment, the price for such work should also be determined. For any unforeseen work, the contractor shall have the written consent of the customer. If he carries out the work without writ- ten consent, he cannot claim an increase in the agreed price (Art. 652). However, the law does not specify what price the contractor may ask the customer to pay. Obviously, he can ask for an agreed price if it was provided in the contract. However, this is unlikely. If the price was not agreed in advance, the provisions on the con- tract to produce a work are applicable (Art. 649(1) since there are no specific rules on this in the chapter of the Obligations code 80 DIGNITAS n Contract Law on the construction contract and a construction contract is only a version of a contract to produce a work. t he contractor may therefore demand a reasonable remuneration (Article 642(1) and (2)). However, there is an important exception to the rule in Arti- cle 652. t he contractor does not need consent for unforeseen works if they are urgent. Urgent works are the works caused by an extraordinary and unexpected event. such events are, for ex- ample, the unexpected difficult nature of the land and the unex- pected occurrence of water. However, the contractor may carry out such works only if they are necessary to ensure the stability of the structure or to avoid damage. Finally, the circumstances must be such that the contractor has not been able to secure the cus- tomer’s consent (Article 653(1) and (2)). However, the contractor must immediately inform the customer of the unexpected event and of the work carried out (Article 653(3)). Urgent and unforeseen work must, of course, be remunerated. t he contractor may claim fair payment (Article 653(4)). t he price for it cannot be fixed by the contract in advance. Obviously, the price will have to be determined according to the circumstances of the case. t he determination of the fair remuneration will cer- tainly be influenced by the normal remuneration for the type of work (Article 642(2)). t his is in line with the regime in the con- tract to produce a work. t he whole set of rules for urgent and unforeseen work is in fact just a special case of agency of necessity (Article 199 et seq.). Its rules supplement the provisions of Article 654 if nec- essary. 3. Price of works 3.1. Method of fixing the price of the works t here are two basic ways of fixing the price, which are merely defined in Article 654. t he parties may freely choose between these two methods, combine them, or choose any other method they may consider appropriate to them. t he price of the works may be determined for a unit of meas- urement for the agreed works. such a price is also called a unit price. t his means that a list of the agreed works is made and for 81 DIGNITAS n Construction Contract each of the works the price and the estimated quantity are fixed. When the works have been completed, the completed works shall be examined. t he purpose of this examination is to determine the quantity of work carried out. Only the quantity of work complet- ed shall be paid for. t his is the consensus view in the literature (k oršič Potočnik, Furlan and sodja, 2019, p. 151; Plavšak, 2004, p. 996; Plavšak and Furlan, 2020, p. 821). t he price of the work may also be fixed as a total amount for the entire structure, i. e. as a lump sum. t he quantities provided for the contractually stipulated works are not relevant. t here is only one price for all of them, and this price is a lump sum. It is therefore not possible to determine how much each work costs. even if the price for specific works is defined, it is irrelevant. Neither of the two basic pricing methods refers to unforeseen works. t hese must therefore be paid for separately. A variant of the price fixed as a total amount for the entire structure is a “turnkey clause” (Plavšak and Furlan, 2020, p. 823). t he definition of a turnkey construction contract is important for the understanding of the turnkey clause. A construction contract with a ‘turnkey’ clause is one in which the contractor undertakes to carry out all the works necessary for the construction and use of the building. In the case of a turnkey price clause, the price shall include the value of all unforeseen works but also the excess quantity of the works. t he impact of missing works on the price set in a con- tract is excluded (Article 659(2); sc vsrs III Ips 135/2015). t hus, the contractor cannot request an increase in the price if he must carry out unforeseen works, even if they are necessary. Nor can the contractor claim payment for all those works which exceed the foreseen quantity; conversely, the customer cannot claim a reduction in the price if any work does not need to be carried out (sc vsrs III Ips 52/2010). t he contractor is, however, entitled to payment for subsequently ordered works, as they exceed the obligations of the contractor assumed by the contract itself (cA vs L I c pg 784/94). In two separate cases courts of appeal have interpreted the clause in the contract that the price is fixed as a clause having the same meaning as a turnkey price clause (c A vs M I c p 230/2023 and c A vs L II c p 1672/2012). 82 DIGNITAS n Contract Law 3.2. c hange in prices t he contractor may request an increase in the price for the works if, between the conclusion of the contract and its perfor- mance, the prices of the elements on which it was based have in- creased. However, he may request an increase in the price only if that price should have been increased by more than two per cent. If the contractor can request a price increase, he can only request a price difference exceeding two per cent (Article 655(1) and (3)). t he provision itself is not clearly worded. It is already unclear what is meant by »price per element«. Does it refer to the price of a certain work that must be performed as a part of the construc- tion contract? Or does it refer to the calculation basis for a single work, provided that not only a single work has to be performed? In this case a price per element would refer to the calculation ba- sis, e. g. for material, machines or workforce which are necessary to perform a work. Not a single decision of any court addressed this question until now. but that is not all. On the one hand, Art. 655(1) and (3) speaks of an increase in the price of elements as a cause, and on the oth- er hand of an increase in the price of works as a consequence. It seems that it wants to stipulate that the price can only be increased if the increase in the prices of the elements would be such that the final price for all the works combined would be higher. t here is also a different view, but it refers only to the price of the works for a unit of measurement of agreed works. t his view holds that the price may already be increased if the price of at least one element is increased by 2% (Juhart in Juhart et al., 2022, p. 107). However, it is not even clear whether such a view refers to a price increase (exceeding 2%) for an individual element or to a price increase for a unit of measurement based on that. Indeed, all the provisions on price increases and decreases link the change in prices to the change in the prices of the el- ements on the basis of which it was fixed. t his means that a change in prices cannot be requested if there is only a change in the general level of prices. A price increase cannot be requested because of inflation, e. g. in consumer prices, but specifically because of an increase in the prices of what is used in the execu- tion of the specific works. Price increases are, of course, easier to calculate for unit prices. t he unit price is the element which 83 DIGNITAS n Construction Contract is one of the basis for the total price of the works. It is difficult to implement the provision on a price increase when a price is set as a total amount for the entire structure as the unit prices are not known. t he situation is even more complex if the contractor is in de- fault. He can ask for a price increase, but only if the prices for the items have increased by the time the work should have been completed under the contract. He can only request an increase exceeding 5%, but he cannot request an increase in the prices of the elements if the prices have increased after he has been in delay (Article 655(2) to (4)). It is logical that he cannot request an increase in the price which occurs during the delay. If he had not been in default, there would have been no price increase during the default either. However, no specific reason can be found for threshold of 5 % instead of 2 % for a change in prices for a contractor during a period when he was not yet in default compared to a contractor who was not in default at all. t he parties may agree that prices will be fixed. However, such an agreement leads only to the contractor being able to claim a price increase if prices rise by more than 10 %. In such a case, he may claim, in addition to the agreed price itself, the difference exceeding the 10 % increase (Article 656). t he problems of in- terpretation are like those of Art. 655(1) and (3). similarly, not a single decision of any court addressed the interpretation issues until now. Only the provisions on price increases are of practical rele- vance. similar arrangements apply in the case of price reductions for elements. t he thresholds are also the same, at 2% and 10%. 4. The contractor’s duties t he contractor has a duty to warn the customer about any de- fects and to any circumstances which may be relevant to the work ordered or to the timely performance of the work (Article 625(3). t he contractor has also a duty to warn the customer about defects in materials, if they were provided by the customer (c A vs L I c pg 539/2019, c A vs L II c p 2207/2011) and about unsuitability of the material (Plavšak, 2004, p. 775). even if the architect warns about a defect, the contractor re- 84 DIGNITAS n Contract Law mains liable if it did not warn about the same defect himself (c A vs L I c pg 424/2018). t he liability of the contractor is limited by the provision of Ar- ticle 625(3). t he contractor has a duty to warn only if he knew or should have known of the defect or circumstances. such a limita- tion is reasonable and necessary. t he main duty of the contractor is to carry out the work, not to carry out a detailed examination. He is not qualified to do that. He must warn about a deficiency in the instructions in the plans or in the customer’s subsequent decla- ration of will, if it was obvious to the contractor (Plavšak, 2004, p. 1047) regarding project documentation (with further references). t he contractor must allow the customer to supervise the works and the materials used at all times (Article 651). 5. Definition of the material defect and warranty periods t he work must be performed in such a way as to comply with the agreement and must be in accordance with the rules of the craft (Art. 626(1)). t he agreement and the rules of the craft there- fore also determine the qualities owed. t he rules of the craft should be rules which are recognised by science as theoretically correct and which, on the basis of practi- cal experience, are also recognised as correct in the professional circle of people of same profession (Plavšak, 2004, pp. 791-792; r atnik, 2001, p. II). r ules of the craft mean that the contractor must act in accordance with the rules that are considered to be correct at the time of the performance of the work in the per- formance of the same type of work. e.g., a carpenter must act in accordance with the rules of the craft of carpenters. t he rules are not static; they do change in the course of time. A defect exists if the work carried out does not have the char- acteristics due. t his includes not only the characteristics that the work must have when it is used, but also its general safety and safety in case of emergencies. t here is a general warranty period for material defects. t his is 2 years (Art. 634(2)). Liability for the stability of the construction is specifically regulated by law. t he construction must be built in a way that is stable. t he warranty period is 10 years (Article 662(1)). 85 DIGNITAS n Construction Contract stability means that something is free from defects because it has the desired quality. c ourt decisions understand the concept quite broadly. t hey include all those defects in all works which should have performed their function within the 10-year period without the defects caused by the normal use of the construction having begun to show. so, for example, in a decision of court of appeal vs L I cpg 55/2020. such a definition seems reasonable. However, it is too vague to allow a reliable distinction to be made between defects in the stability of construction and other defects. Other material defects are those that do not relate to the stability of the construction, i. e. the material defects for which the war- ranty period is two years. t he case law on what constitutes defects affecting the stability of a construction is not very diverse. As a rule, leaking and seep- ing of water is considered a defect in the stability of the construc- tion (all the judgements have been taken by the courts of appeal: vs L I c pg 316/2016, vs L I c pg 83/2014, vs L I c pg 3192/2015, vs L I cpg 26/2020, vs L I cpg 923/2017, vs L I cpg 166/2016, vs L II c pg 2132/2018. However, in the decision of the court of appeal vs L I c pg 166/2016, the court held that, given the circumstances of the case, this was not the case. Other types of defects in the stability of construction are rarely addressed in court decisions. For example, in one case the court held that defects affecting the solidity of the construction are cracks in the ceiling, in particular in the ceiling above the living room, which affect the static stabil- ity of the building (c A vsk c p 503/2013). t he Obligations code also specifically mentions »defects in the land” (Art. 662(1) and (2)). t he warranty period for these defects is 10 years. t he wording of the provision on liability for defects in the land does not refer to defects which appear in the construction and are caused by defects in the land. t he provision expressly refers to defects in the land. No intelligible explana- tion can be found for holding the contractor liable for something which is not even his contractual duty, namely, to provide land. However, Furlan (2018, p. 36) believes that Article 662(1) and (2) govern liability for defects in the construction caused by de- fects in the land even though Furlan makes observation that its text refers only to defects in land. even such interpretation does not make much sense. since the land must be provided by the customer, it is the customer who must bear all the consequences 86 DIGNITAS n Contract Law of the unsuitability of the land for construction, and certainly not the contractor. t he Obligations code provides reduction or of full exemp- tion from liability if an expert opinion assessed that the land was suitable for construction and no events during the construction triggered any doubt over the justification of the expert opinion (Article 662(1). However, this might attenuate the situation of the constructor but does not justify the liability. 6. Apparent and concealed defect t he distinction between apparent and concealed defects is crucial. t hey are subject to different rules for the exercise of the customer’s rights. A defect is apparent if it could have been spotted by a diligent person with average knowledge and average experience during a normal examination. If the contractor changes the location of the car park and the number of parking spaces and resurfaces the old car park instead of building a new one, it is an apparent defect (c A vs L I c pg 894/2014). It is also an apparent defect if there are minor unevennesses in the base slab (c A vs M I c p 421/2011) or if the floor slab is located 10 cm away from the position provided by the contract (c A vsk c p 824/2008). All other defects are concealed. A defect may become visible if special circumstances are given. t his defect is a concealed defect. For example, rainwater infiltration into the façade only occurs during rainfall (c A vs L I c p 83/2014). 7. Examination and notification of material defects 7.1 examination, acceptance, and notification of an apparent defect t he work performed must be examined by the customer as soon as this is possible in the ordinary course of things (Article 633, paragraph 1). If there is any apparent defect, it may be notified by the cus- tomer. t his means that the customer must describe the defect and inform the constructor of it. t he description of the defect must 87 DIGNITAS n Construction Contract be specific (e.g., sc vsrs III Ips 71/2009, c A vs L I c pg 746/2020). t his applies to any defect, even concealed ones. t he customer is not obliged to investigate the cause of the defect which is now a settled case law supported by Plavšak (2004, p. 848). A descrip- tion such as a non-expert can give is sufficient. t he customer must notify without delay (Article 633(1)). If the work carried out is has an apparent defect, a customer may refuse to approve the work carried out and refuse to pay for it (Article 642(1)). t he approval of the work is called acceptance. t he customer’s acceptance has two consequences. t he first is that the customer must make the agreed payment (Article 642(3)). t he second con- sequence is that the contractor is, as a rule, no longer liable for ap- parent defects (Article 633(3). exceptions exist based on Articles 636 and 663(3). While the contractor usually has a considerable amount of time to carry out the work, the customer has little time to examine it. Namely, the customer may not trigger the reproach that he has failed to examine the work in the ordinary course of things (Article 633(1)). t his would give rise to a fictitious acceptance which will be discussed later in the article. t here is an apparent and, overall, unjustified benefit for the contractor since the customer can only notify apparent defects up to the end of the examination and ac- ceptance. After acceptance, liability for apparent defects ceases. t his imbalance to the detriment of the customer was partially addressed in the now abolished c onsumer Protection Act of 1998 (Article 38(2)) in favour of the customer if he was a consumer. However, the new consumer Protection Act (of 2022) does not provide any specific rules on inspection or acceptance (see Arti- cles 99 to 101) so that the general rules of the Obligations c ode are applicable. After an acceptance, the contractor must pay the agreed price (Article 642(3)). He may, however, reasonably expect that con- cealed defects will be discovered later as this is frequent the case with any construction simply due to the characteristics of con- struction works. Notwithstanding the substantial likelihood that defects will be discovered later, the customer must pay the full price. Although the contractor is obliged to remedy the defects, the customer is nevertheless in a difficult position. t he contractor’s interest to 88 DIGNITAS n Contract Law remedy the defects will normally be low or non-existent as he cannot expect any additional remuneration for this. t he customer has therefore no guarantee that the contractor will fulfil his obli- gation although there is no doubt that it exists. In addition, during the entire interim period until the con- cealed defects are discovered and remedied, there will be a risk that the contractor will become insolvent. If the contractor be- comes insolvent or ceases to exist by reason of liquidation, the loss due to the concealed defect shall be borne by the customer. None of both acts on consumer protection (c onsumer Protec- tion Act of 1998 and of 2022) provided any specific norms on payment that would alleviate the position of a customer who is a consumer. Any avoiding of examination in due time or acceptance by the customer shall lead to a fictitious acceptance (Article 633(2)). Ac- ceptance shall be deemed to have taken place even if it has not actually taken place. After the notification, the customer has one year from the date of notification to assert his rights in court as a plaintiff (Article 635(1)). After the expiry of one year this right ceases to exist. Afterwards the customer may abate the price or claim damages, but he can use only these two rights and only as a defence. If the customer raises either of the two warranty defences, he bears the burden of proof (vs rs III Ips 14/2009). He must state specifically and with certainty what the defect was, when it was discovered and when it was notified (cA vs L I cpg 1073/2011 and cA vs L I cpg 1303/2010). t hese provisions apply to apparent and con- cealed defects. In the two cases which are exceptions to the rule, the customer is not limited by Articles 633 to 635 in exercising his rights. t hese rules apply to apparent and concealed defects equally. t he first of the two cases is that the defect relates to facts which could not have remained unknown to the contractor or were known to him. t he second is that he has, by his conduct, deceived the customer into not exercising his rights in time (Article 636). 7.2 Notification of a concealed defect If a concealed defect becomes apparent within two years of ac- ceptance, the contractor may still exercise the rights which he has 89 DIGNITAS n Construction Contract because of the defect (Art. 634(2)). In any event, he must notify the contractor of the concealed defect within one month of the discovery of the defect at the latest (Art. 634(1)). 7.3 Notification of a concealed defect in the stability of the construction and defect in land As regards defects in the stability of the work, the contractor may give notice of the defect within six months of discovering the defect (Article 663(1)) and if the defectiveness becomes ap- parent within 10 years of acceptance. t here are no specific pro- visions on the details of notification. t he general provisions on contract to produce a work must apply. t he same rules apply to defects in land. 8. The customer’s rights in a case of material defect before the expiry of the period agreed for the performance of the works As a rule, the contractor may not be held to be in breach of the contract before the time limit for performance has expired. An exception to the rule described above is in Article 627, namely that the customer may already rescind the contract before the expiry of the time limit during the performance of the work and, after rescission, claim damages. He may do so if the contrac- tor breaches the terms of the contract, “does not work at all as he should” and the work performed is expected to be defective. r escission of the contract is therefore possible, but only in the case of serious breaches of contract which the contractor cannot remedy by the expiry of the time limit. t he practical significance of this norm has so far been negli- gible. 9. The customer’s request for remedy of defects before the expiry of the time limit for performance of the works t he customer may demand remedy for defects (Articles 639). It may be inferred from these provisions that the customer may 90 DIGNITAS n Contract Law not claim damages in lieu of remedy of the defect. t his does not mean that the contractor cannot claim damages at all. He can therefore claim both remedy and damages, but not damages in lieu of remedy. t he contractor may, as a rule, claim remedy of defects after the contractor has invited him to examine and accept the work and if the customer refused to accept the work for a good reason (Article 633(2)). t here are two exceptions to this rule. t he customer may immediately rescind the contract if the work performed is either useless or contrary to the express terms of the contract (Art. 638). t his is the first exception. t he second exception is governed by Article 637(3). t he con- tractor may refuse the customer’s request to remedy the defect if remedying the defect would entail excessive costs. even if the contractor refuses to remedy the defect, the customer retains the other rights he has under Articles 637(2) and 639(3). t he contractor has a right to require the customer to allow him to remedy the defect (Article 639(1)). If the customer does not allow the contractor to remedy the defect, he is in breach of his duty owed to the contractor. t he consequence is that the custom- er’s warranty claims are extinguished (c A vs L I c pg 335/2010). t he customer requires the defect to be remedied by notifying the contractor that he must remedy the defect. t he customer may also seek remedy of the defect in court (c A vs L I c pg 816/2011). As a rule, the customer cannot contractually require the con- tractor to perform the work in a certain way, unless otherwise agreed. If the work performed is defective, the situation for the contractor may not and does not change. He still owes (only) to perform the same work and in the same way as he has owed all along, so that the customer cannot demand that the defects be remedied in a particular way (cA vs L II cp 1789/2021; Plavšak, 2004, p. 868). t he customer may set a reasonable time limit for the remedy of the defect (Article 637(1) and Article 639(2)), which it must set himself. During this period, the customer may not exercise any rights which he would otherwise have under Article 639(3) or (5). t he costs of remedying the defect must be borne by the contrac- tor (c A vs M I c pg 196/2013). t he contractor may again request examination and acceptance after the defect has allegedly been remedied. t he customer is in 91 DIGNITAS n Construction Contract the same legal position as if the contractor had offered defect- free work at a prior attempted acceptance. t he customer has the duty of examination and notification of any defects (c A vs L I c pg 436/2012). 10. The customer’s rights in the event of failure to remedy defects In addition to the claim for remedy of the defect, the customer shall have other rights. t hese rights are described in more detail below. t he customer may exercise these rights if the following conditions are met (Article 639(3) and (5)): (a) the customer has set a time limit for the remedy of the de- fect, (b) the time limit has expired, (c) the work is still defective, (d) the period of one year from the date of notification has not yet expired. After the expiry of the time limit for remedy of the defect, the customer may remedy the defect himself, he may abate the price, or he may rescind the contract (c A vs L II c p 1644/2017). t he purpose of these rights is to compensate the customer for the loss suffered because of the contractor’s breach of contract. t he purpose of exercising each of these rights is to achieve equiv- alence of the mutual performances of the two contracting parties. t he rights conferred by Article 639(3) are alternative (c A vs L II cp 1040/2021). t he customer may exercise any of them, but not two or even three at the same time. t his is also the case-law: the customer may choose one of them, but not two (c A vs L I c pg 1240/2010) or even all three at the same time. If the defect has been notified and remedied, the customer may also claim compensation for the damage caused to him. After the expiry of the time limit without result, he may claim additional damages too. However, the customer may not claim damages for diminished value of the work resulting from the defect. He can only claim any of the three alternative rights of the customer (Ar- ticle 639(3)) and compensation for other damages caused by the defect. t he rights which the customer may exercise under Article 639(3) and (5) are therefore: 92 DIGNITAS n Contract Law (a) remedy of the defect at the contractor’s expense and a claim for damages, (b) abatement of the price and claim for damages, (c) rescission of the contract and claim for damages. After the notification, the customer has one year from the date of notification to assert his rights in court as a plaintiff (Article 635(1)). t he one-year time limit is a preclusive period. It starts from the date on which the customer should have known of the defect or from the date on which he knew of it. t hat is when he had the information about the existence of the defect. It can be inferred from the decision of the supreme c ourt vsrs II Ips 241/2016 that this is the position of the supreme c ourt of slove- nia. t he decisive moment is therefore when the customer could claim rights for defects. exceptionally, the one-year time limit does not apply if the contractor (Art. 636 and Art. 663(3)): (a) knows or ought to have known the facts relating to the de- fects and has not communicated them to the customer; or (b) has misled the customer by his conduct into not exercising the rights in time. t here is extensive and settled case law on both exceptions. t he first exception relates to fraudulent concealment and re- lated cases of concealment of the facts (supreme c ourt decisions vsrs II Ips 329/99 and vsrs II Ips 162/2010). t he second exception relates to misrepresentation. Misrepre- sentation includes conduct from which the customer may infer that the contractor intends to remedy the defect voluntarily, as well as a failed attempt to remedy the defect (see decisions of the supreme c ourt vsrs II Ips 658/2006, vsrs III Ips 69/92, vsrs II Ips 309/2005 and vsrs II Ips 29/2006). t he contractor’s failure to respond does not constitute misrepresentation. t hat was the decision of court of appeal vs L I c p 2413/2017. If the contractor starts to remedy the defects, the claim for remedy is subject to a general limitation period of five years (sc v srs II Ips 7/2011). If a commercial contract has been concluded, a limitation period of three years applies. t he same time limit of one year is laid down in respect of a defect in a solidity of a construction and for a »defect in the land« (Article 663(2)). 93 DIGNITAS n Construction Contract 10.1 r emedy of the defect at the contractor’s expense t he contractor has the right to remedy the defect (Article 639, paragraph 1) until the expiry of the time limit for remedy of de- fects. t he customer may decide to remedy the defect himself. t his option is provided for in the first of the three alternatives set out in Article 639(3). He may claim reimbursement of the costs in- curred in doing so from the contractor. t he customer either claims reimbursement of the actual ex- penditure incurred to remedy the defect or the estimated expend- iture to remedy the defect (c A vs L II c p 1040/2021 and Plavšak, 2004, p. 871). t he exercise of such a right does not lead to the rescission of the contract. t he contract does remain valid. 10.2 Abatement of price It is the customer who may abate the price after an attempt to remedy a defect has failed. t his is provided for in Article 639(3); see also the decision of the supreme c ourt in a case concerning a contract of sale (sc vsrs II Ips 38/2012). t he customer may also exercise this right outside the court proceedings by making a declaration of will. An abatement of price is possible even after the expiry of the one-year time limit for judicial enforcement by way of an action (Art. 635(1)). It can only be enforced in any court proceedings by way of an objection (Art. 635(2)). In abating the price, the payment is to be reduced in the ratio of the value that the defect-free work would have had to its actual value at the time the contract was concluded (Article 640). t his method fails if the defective work is not available on the market. For example, what is the value of a building with a leak- ing roof on the market? t here is simply no market for such build- ings and therefore no values to compare with. t he implementa- tion is impossible. c ase law in such cases considers the valuation carried out by an expert. v ery informative was the description of the difficulties the court faced when it had to decide on an abate- ment of price and how it dealt with (cA vs L I cp 3015/2012): »t he expert did not give the market value of the flat, and sup- ported this by stating that it was not possible to estimate it at all, 94 DIGNITAS n Contract Law because no buyer would have bought a flat with such defects. He therefore determined the technical value of the apartment, which he estimated to be at least 60 % lower because of the defects and lack of usability …”. If the defect is remedied, the customer is no longer entitled to an abatement of price (c A vsc c pg 195/2012). t he customer must notify the contractor by how much the price is abated (sc vsrs III Ips 6/2010). After the customer has abated the price by a declaration of will, the payment is reduced. 10.3 r escission of a contract t he customer may also rescind the contract if the defect has not been remedied and is not insignificant (Art. 639(4)). What has been received is to be returned (Art. 111). In exercising the rights resulting from the rescission from the contract, the customer is not bound by the time limit laid down in Article 635(1) (c A vs L I c pg 1240/2010). 10.4 t he customer’s claim for damages for defects under Article 639(5) t he customer has »in any event« a further right to damages (Article 639(5)). t he customer can only claim damages in con- junction with any of the rights he has under Article 639(3). Dam- ages cannot therefore be claimed to make good the disadvan- tage suffered by the customer as a direct result of the defect. t he disadvantage is rectified by remedying the defect at the contrac- tor’s expense, by reducing the price, etc. A claim for damages may consequently only seek compensation for other disadvan- tages (c A vsc c p 460/2011). Only damages that are closely and directly related to the defect and its remedy, such as costs for failed acceptance, costs for technical or legal assistance, etc., are considered. Of course, claims for damages may also arise on other legal grounds because of the defective performance of construction work. t hese claims are not subject to the one-year preclusive pe- riod (Article 635). 95 DIGNITAS n Construction Contract 11. Conclusions A contract whereby a contractor undertakes to carry out con- struction work is quite different from a contract to produce a work. t he legislator’s decision to regulate the construction con- tract as a special type of contract was a reasonable one; the same may be said for the choice of the norms of contract to produce a work as the basis for the construction contract. t he same tech- nique is, for instance, applied in the German c ivil c ode. see inso- far t itle 9 subtitle 1 of the special Part and sections 631 and 650a of the German c ivil c ode). Nevertheless, the provisions on the construction contract in slovenian law leave a lot to be desired. t here is no clear delimi- tation between a contract to produce a work and a construction contract. t he provisions on price changes are too ambiguous and unclear. Provisions on the warranty for defects favour the contractor; they are in a complete imbalance with the rights of the customer without proper justification. t he decision to set two different warranty periods is difficult to implement. t he liability for defects of the land is contrary to the fundamental obligations of the contractor. BIBLIOGRAPHY AND SOURCES Publications Furlan, M. (2018), Nekaj vprašanj v zvezi z gradbenimi spori, Odvetnik, 2, 34 – 38. Juhart, M., Možina D., Weingerl P., Lutman k ., kovač M., Djinović M., r enko J., sekirnik J., Damjan M., Igličar A., Lečnik spaić U., Podakar N., Podržaj P., Pravni letopis 2022, 101 – 114. koršič Potočnik, M., Furlan, M., sodja, v. (2019) veliki gradbenopravni priročnik, section 5.8.3. kaj pomeni cenovna klavzula cena na enoto, 150 – 151. Plavšak, N. (2004), in M. Juhart and N. Plavšak (ed.) Obligacijski zakonik s komentarjem, 3. knjiga, XI. poglavje podjemna pogodba and XII. poglavje gradbena pogodba, 723 – 1057. Plavšak, N., Furlan M. (2020) in N. Plavšak (ed.) Obligacije posebni del, komentar posebnega dela Obligacijskega zakonika, 1. knjiga, 14. poglavje gradbena pogodba, 729 – 853. r atnik, A. (2001), Gradbena pogodba: nujna nepredvidena dela in razveza pogodbe zaradi spreme- njenih okoliščin, Pravna praksa, 38, attachment, I -v III. Jurisprudence c ourt decisions are available on the internet page of slovenian judiciary: https://www.sodnapraksa. si/. If the decision is that of the supreme c ourt by the acronym “sc ” was added if necessary for the ease of understanding; if the decision was taken by any of 4 courts of appeal, the acronym c A is used instead. 96 DIGNITAS n Contract Law c A vs vs L I c pg 796/2012. c A vsc c p 460/2011. c A vsc c pg 195/2012. c A vsk c p 503/2013. c A vsk c p 824/2008. c A vsk c pg 165/2012, c A vs L I c p 3015/2012. c A vs L I c p 3442/2010. c A vs L I c p 481/2014 c A vs L I c p 481/2014. c A vs L I c p 761/2009. c A vs L I c p 83/2014. c A vs L I c pg 1073/2011. c A vs L I c pg 1240/2010. c A vs L I c pg 1240/2010. c A vs L I c pg 13/2013. c A vs L I c pg 1303/2010. c A vs L I c pg 1444/2010, c A vs L I c pg 335/2010. c A vs L I c pg 424/2018. c A vs L I c pg 436/2012. c A vs L I c pg 539/2019. c A vs L I c pg 733/2011. c A vs L I c pg 746/2020. c A vs L I c pg 784/94. c A vs L I c pg 816/2011. c A vs L I c pg 894/2014. c A vs L II c p 1040/2021. c A vs L II c p 1040/2021. c A vs L II c p 105/2012. c A vs L II c p 1644/2017. c A vs L II c p 1672/2012. c A vs L II c p 1789/2021. c A vs L II c p 195/2012. c A vs L II c p 2207/2011 c A vs L II c p 2526/2009. c A vs M I c p 1170/2009. c A vs M I c p 230/2023. c A vs M I c p 421/2011. c A vs M I c pg 196/2013. c A vs M I c pg 345/2012. sc vsrs II Ips 7/2011. sc vsrs III Ips 135/2015. sc vsrs III Ips 52/2010. sc vsrs III Ips 6/2010. sc vsrs III Ips 71/2009. sc vsrs , III Ips 15/2015, v s rs III Ips 14/2009. v sL I c p 2413/2017. v sL I c pg 166/2016. v sL I c pg 166/2016. v sL I c pg 26/2020. v sL I c pg 316/2016. v sL I c pg 3192/2015. v sL I c pg 83/2014. v sL I c pg 923/2017. v sL II c pg 2132/2018. v srs II Ips 162/2010. v srs II Ips 241/2016. v srs II Ips 29/2006. v srs II Ips 309/2005. 97 DIGNITAS n Construction Contract vsrs II Ips 329/99. v srs II Ips 658/2006. v srs III Ips 69/92. Legal sources Obligations c ode (Official Journal of the r epublic of slovenia, 83/01 and 40/07). c onsumer Protection Act (Official Journal of the r epublic of slovenia, 130/22). German c ivil c ode (Federal Law Gazette, p. 42, 2909; 2003 I p. 738.