Is it possible to circumvent the requirement of a construction licence by subcontracting all the work?

Competence of a company for construction

Pursuant to the Montenegrin Spatial Planning and Construction of Facilities Act (Zakon o uređenju prostora i izgradnji objekata) (the “Act“), a company or an equivalent entity (“Company“), must possess a construction licence (“Licence“) in order to perform construction works.

Nevertheless, the number of companies licensed to carry out all construction works necessary for construction of a building entirely by themselves is limited. Most are licensed only for certain construction works. These companies are entitled to enter into a construction contract with an employer for performance of construction works (“Agreement“) as a contractor and to subcontract the work that they are not licensed to perform to other licensed companies.

Controversy

There is controversy, however, about whether a non-licensed company, as a contractor, may enter into an Agreement with an employer and then subcontract all the work to a subcontractor in order to circumvent the requirement of a construction licence. It can be argued that the basis for determining this is the factual performance of the work; in other words, that only a company actually performing the work requires a licence.

Nevertheless, relevant court rulings dictate that a non-licensed company is not entitled to enter into the Agreement, since what is relevant is which company entered into the Agreement, and not which one performed the construction works: “The Council finds erroneous application of the substantive act when it is stated that the party that actually performed the construction works was relevant, and not the party that concluded the agreement in terms of which it was obligated to carry out the construction” (in the context).

Moreover, relevant court practice dictates that “an agreement with the subcontractor can be entered into merely for certain construction phases and not for the entirety of the works, which means that (Nomen nescio) was obligated to possess the licence as proof that it met the conditions for performance of its business activity”.

Otherwise, a situation where a company registered for a completely different line of business enters an Agreement as a contractor and subcontracts all the works under the Agreement, would be possible.

It is not advisable to circumvent the requirement of a construction licence by subcontracting all the work. Only companies licensed for performance of construction works can, in their capacity as a contractor, enter into an Agreement. Companies entering into an Agreement in the capacity of a contractor may subcontract only certain phases of the construction works and not the entirety of the works.