The Parliament of the Republic of Serbia has adopted the Law on Stimulating Construction Industry of the Republic of Serbia in a response to the new Conditions of the Economic Crisis (hereinafter referred to as: the "Law"). The Law is in force for definite period of time (until 31 December 2011), and is enacted aiming at accelerating the recovery of the domestic real-estate sector that is most affected by the global economic crisis.

Namely, the Law provides for terms and conditions for the implementation of the projects for construction, reconstruction and restoration of the objects and procedure for selection of the construction companies (developers) and other providers of services. At the proposal made by the competent ministry or municipality body, the Government determines the list of projects which are going to be financed wholly or partially from the budget or by the state-owned enterprise which is established by the municipality, autonomous province or the Republic of Serbia.

Projects that are funded and implemented in accordance with this Law are related to the construction of schools and kindergartens, hospitals, apartments, highways, sports facilities, facilities for the performance of activities related to culture and other objects of public importance. Regarding the construction of the apartments (residential buildings), the Government shall set the highest and the lowest price for construction.

Further to the above, the Law clarifies that the contractor for the above noted projects may be the competent ministry, competent municipality body or competent body of the autonomous province or public enterprise. In contrast to the Procurement Law, the selection procedure shall be governed by the Law, whereas instead of public invitation the contractor shall invite the companies that meet criteria set by the Government (see below) and negotiate directly with the companies which submit the offer within 15 days from the day of receipt of the invitation.

The Law favors construction companies with registered seat within the territory of Republic Serbia with certain know-how and references and which employ a significant number of employees or which can employ significant number of employees. This unequal treatment of the domestic and foreign construction companies can be easily curved out by establishing a company in Serbia owned by foreign investors. However, the criteria for the determination of such companies shall be imposed by the Government Act and thus until adoption of this Act it remains unclear how this matter shall be resolved.

Furthermore, in compliance with the Law and in support to the domestic economy when building the construction, the companies must use at least 70% of construction material and built-in equipment that originate from Serbia.

Although the Law by its title tends to be a milestone in the Serbian construction industry it has been already disputed. One may argue that the Law intentionally derogates transparent procurement procedure in order to enable the contractor to negotiate directly with the most appropriate construction companies according to his discretion. In public this is seen as another legal justification for corruption and breach of the constitutional rights and in media it is announced that the provisions of the Law shall be subject to investigation by the Constitutional Court.

From the previous practice it can be concluded that the Law shall be only a dead letter on paper until adoption of the supporting by-laws by the Government. Therefore, it is still early to predict practical implications of the Law and its effects to the Serbian real-estate market and one must wait until the first project is implemented.

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