29.11.2012

Proposed reforms to the construction licensing regime are now at an advanced stage in the legislative process. Once signed into law, the changes will clarify and greatly simplify the existing licensing regime and should provide a spur to investment in the construction sector.

On 2 October 2012 the Ukrainian parliament approved a bill that would decrease the number of licences required to carry out construction work, by abolishing the need to hold a licence for certain activities (the “Bill”)*. Rather than signing the bill into law, however, the president exercised his veto to return it to the parliament with certain proposed amendments, which would further extend the number of activities that do not require a licence. In our view the president’s proposals represent an improvement on the already positive changes, and many are likely to be integrated into the revised text to be passed by the parliament.

The reforms in the present Bill

As currently drafted, the Bill would abolish the need for a licence for the following activities:

(a) installation of utility systems (such as: internal or external electrical systems, gas- and water-supply, sewage and heating systems, etc.);

(b) construction of transport infrastructure (such as: railways, roads, bridges, etc.); and

(c) the management and supervision of construction projects (in particular, acting as general contractor and general designer). Under the Bill, the following four activities would still require a licence:

(i) preparing city-planning documentation;

(ii) conducting surveys for construction projects (for instance, geological and engineering surveys);

(iii) designing buildings and structures; and

(iv) constructing buildings over a certain level of complexity (i.e., categories IV and V).

The president’s proposed amendments

The president has proposed that the requirement for a licence should also be abolished for activities (i) to (iii) above, leaving only (iv) that would still require a licence. The reasoning given for this is that activities (i) to (iii) can already only be undertaken by qualified individuals, making additional licensing unnecessary.

Transition period

The above changes will require knock-on amendments to the secondary legislation in this area. As these are likely to take a long time to prepare and approve, we should be prepared for a transition period during which the legislation adjusts to the reforms.

Shortcomings of the present regime

As well as requiring extensive licensing, the present system suffers from substantial inconsistencies and uncertainty. Licenses are required for the following activities, which overlap significantly with the categories mentioned above:

(i) all construction and installation works;

(ii) preparing city-planning documentation;

(iii) designing;

(iv) conducting surveys;

(v) installation of utility systems;

(vi) construction of transport infrastructure; and

(vii) management and supervision of construction projects.

A clear procedure for obtaining such licences is only in place for item (i) above, however, and in fact only with respect to the construction of buildings of categories IV and V of complexity. In the other cases, despite the general requirement to obtain a licence for activities (ii) – (vii), there is no statutory procedure for the authorised bodies to issue such licences.

Matters are further complicated by the position of the Inspectorate for State Architectural and Construction Supervision, which is the body authorised to issue construction licences. The inspectorate insists that it needs only to issue three types of licences, for the following activities:

* construction and installation work with respect to buildings of categories IV and V of complexity;

* installation of utility systems in buildings of categories IV and V of complexity; and construction of transport infrastructure assigned to categories IV and V ofcomplexity.

In our view, this position is not compliant with the existing legislation, and could place developers at risk of sanctions for a legal non-compliance that is not of their own making. This is an additional reason to welcome the clarity brought by the forthcoming changes.

*Draft law No. 5199-IV “On Introducing Changes into the Laws of Ukraine ‘On Architectural Activity’ and ‘On Licensing of Certain Types of Commercial Activities’”