Construction in Post-Soviet Countries 2021: Ukraine

Construction activity in Ukraine is regulated by many legislative acts. The main ones are listed below.

Codes of Ukraine:

Commercial Code of Ukraine dated 16 January 2003 № 436-IV (the "Commercial Code").

Laws of Ukraine:

1)     Law of Ukraine "On Regulation of Town-Planning Activity" dated 17 February 2011, No. 3038-VI (the "Construction Law");

2)     Law of Ukraine "On Liability for Violations in Town-Planning Sphere" dated 14 October 1994, No. 208/94-ВР (the "Law on Liability"); and

3)     Law of Ukraine "On Local Self-Government" dated 21 May 1997, No. 280/97-ВР (the "Law on Self-Government")

Decrees and Resolutions of the Cabinet of Ministers of Ukraine:

1)     Resolution of the Cabinet of Ministers of Ukraine "On the Approval of the Resolution on the State Labour Service of Ukraine" dated 11 February 2015, No.96;

2)     Resolution of the Cabinet of Ministers of Ukraine "On the Approval of the Order on Filing and Registration of the Declaration of Conformity of the Material and Technical Base of the Entity with the Requirements of the Legislation on Fire Safety" dated 05 June 2013, No.440;

3)     Decree of the Cabinet of Ministers of Ukraine "On the Procedure for the Approval of Construction Projects and Their Expertise" dated 11 May 2011, No.560 ("Decree No. 560");

4)     Decree of the Cabinet of Ministers of Ukraine "On the Approval of the Procedure for the Appraisal of Workplaces" dated 01 August 1992, No.442;

5)     Decree of the Cabinet of Ministers of Ukraine "On Issues on Commissioning of Completed Construction Objects" dated 13 April 2011, No.461 ("Decree No. 461");

6)     Resolution of the Cabinet of Ministers of Ukraine "On the State Registration of the Ownership Rights to Immovable Property and Their Encumbrances" dated 25 December 2015,No.1127;

7)     Decree of the Cabinet of Ministers of Ukraine "Some Aspects of Performing Preparatory and Construction Works" dated 13 April 2011, No.466 ("Decree No. 466");

8)     Decree of the Cabinet of Ministers of Ukraine "On Some Issues of Licensing the Construction of Objects Referred to the Class of Consequences (Responsibility) as Objects with Medium and Significant Consequences" dated 30 March 2016, No. 256 ("Decree No. 256");

9)     Decree of the Cabinet of Ministers of Ukraine "General Conditions for the Conclusion and Execution of Contracts in the Capital Construction" dated 1 August 2005, No. 668 ("Decree No. 668"); and

10) Decree of the Cabinet of Ministers "On the Approval of the Procedure for Issuance of Permits for Highly Dangerous Works and for Operation of Highly Dangerous Machines, Mechanisms and Facilities" dated 26 October 2011, No.1107 ("Decree No. 1107").

Other legal acts applicable to the construction in Ukraine include:

1)     Order of the Ministry of Social Policy of Ukraine "On the Approval of the Forms of Expert Reports on the State of Occupational Safety and Health" dated 07 November 2018, No.1654;

2)     Order of the Ministry of the Regional Development, Construction and Housing of Ukraine "On the Approval of the Procedure for Preparation of Design Documentation for Construction" dated 16 May 2011, No. 45, as registered with the Ministry of Justice of Ukraine on 01 June 2011 under No.651/19389 ("Order No. 45");

3)     Order of the State Committee of Ukraine on Labour Observation "On the Approval of the Model Regulations on the Procedure for Training and Testing Knowledge on Occupational Safety and the List of Highly Dangerous Works" dated 26 January 2005 , No.15;

4)     Order of the Ministry of Health of Ukraine "On the Approval of the Order on Carrying out Medical Examinations of Employees of Certain Categories" dated 21 May 2007, No. 246;

5)     Order of the Ministry of Social Policy of Ukraine "On the Approval of the Minimum Safety Requirements for Employees Using Personal Protective Equipment at the Workplace" dated 29 November 2018, No. 1804;

6)     Order of the Ministry of Fuel and Energy of Ukraine "On the Approval of the Rules on Technical Operation of Consumer Electrical Installations" dated 25 July 2006, No. 258;

7)     Rules of Technical Operation of Consumer Electrical Installations, as approved by the Order of the Ministry of Fuel and Energy of Ukraine dated 25 July 2006, No. 258;

8)     State Building Standards А.3.1-5-2016; and

9)     Instruction for Conducting Inspections of Electrical and Heat-Using Installations and Thermal Networks and Registration of Their Results, as approved by Order of the Ministry of Fuel and Energy of Ukraine dated 24 December 2004, No.817,

hereinafter collectively – the "Legislation".

Stages of implementation of a construction project in Ukraine

The following are the standard stages of implementation of a construction project in Ukraine:

• Selection of a land plot;
• Development of an optimal conception for implementation of the project (including the development of a business plan);
• Pre-design work (the audit of the existing relevant documents, the collection of the initial for design data, the feasibility study (FS), the power distribution chart, etc.);
• Obtaining technical specifications;
• Design work;
• Selection of general contractor and subcontractors;
• Construction, installation and commissioning; and
• Registration of the ownership right to the constructed facility.

Division of construction objects into categories

Since 2017, all construction objects in Ukraine are divided, depending on the level of potential threat of a construction object to the health and life of individuals staying in or outside it and financial damage or social losses related to its failure or loss of its integrity (the "Consequences") into:

- (CC1) - objects capable of causing minor Consequences;

- (CC2) - objects capable of causing medium Consequences; and

- (CC3) - objects capable of causing significant Consequences.

"CC1 complexity category" according to Article 32 of the Construction Law, means minor consequence class which applies:

-        to buildings where the level of potential threat to the life and health of individuals staying permanently there concerns no more than 50 individuals;

-        to buildings where the level of potential threat to the life and health of individuals staying regularly there concerns no more than 100 individuals;

-        where the amount of financial losses in the event of failure of the relevant building does not exceed 2,500 minimum wages;

-        where the relevant building is not a cultural heritage site and is not being constructed within the limits of its protected zone;

-        where the relevant building is not a highly dangerous object;

-        where the relevant building is not a residential building exceeding four storeys; hereinafter - "CC1".

"CC3 complexity category" applies:

-        to cultural heritage sites;

-        to highly dangerous objects;

-        to residential, public and multifunctional buildings higher than 1,000 meters and/or if potential threat to the life and health of individuals staying permanently there concerns more than 400 individuals.

"CC2 complexity category" (medium consequences class) includes objects which are not included in CC1 or CC3, as listed above, hereinafter - "CC2".

Procedure for development of design documentation

The procedure for development of the design documentation is regulated by Order No. 45, according to which the design documentation may be developed by individuals possessing relevant certificates confirming their qualifications.

The stages and complexity of the design documentation depend on the complexity category of construction (CC1, CC2, CC3), as described above.

Pursuant to Order No.45, the design documentation must contain the following stages:

-        feasibility study;

-        stage "P" – project; and

-        stage "WD" – working documentation.

The prepared design documentation must be accepted and approved by the customer.

Examination of design documentation

According to Decree No. 560, for the complexity categories CC2 and CC3, the design documentation must be approved by independent licensed expert organizations. These organizations are entitled to involve the state land resource, environmental, sanitary and other competent authorities in the examination of the above documentation.

The examination may be performed by the state or private expert institutions.

The experts examine:

1)     mechanical resistance and stability (strength, reliability, durability) of buildings and structures;

2)     fire and technogenic security;

3)     human life and safety;

4)     environmental protection;

5)     sanitary-epidemiological welfare of the population;

6)     operation safety and compliance with occupational safety requirements;

7)     noise protection; and

8)     energy efficiency;

As a result, the expert institution issues an expert report describing all technical characteristics of the project and confirming whether the project is prepared in compliance with the state building standards or not.

Declaration for beginning of construction works and construction permit

There are two documents which provide the right to begin the construction in Ukraine:

1)  declaration for the beginning of construction works (the "Declaration"); and

2)  construction permit (the "Permit").

The Declaration provides the right to construct a project of complexity category CC1; the Permit is required for a construction of the complexity categories CC2 and CC3.

There are two official registers which contain information regarding all of the documents for beginning the construction activity and commissioning newly constructed buildings/facilities/structures, namely:

1)     https://dabi.gov.ua/declarate/list.php; and

2)     https://e-construction.gov.ua/

Engagement of subcontractor in construction activity

According to the Legislation and current practice, there are two options to carry out the construction activity in Ukraine:

1)     execution of a general construction agreement (which includes a subcontractor as a party to the agreement); and

2)     execution of a (1) general construction agreement; and (2) a subcontract (as two separate contracts).

Schematically, the above options 1 and 2 are as follows:

where:

SPV is a customer (i.e., a party to the agreement which orders construction works and accepts and pays for them upon completion;

General Contractor is a contractor which engages third parties (subcontractors) to perform all or certain works under the agreements but remains liable to the customer for the results of all work;

and

Subcontractor is a person hired to perform works pursuant to a subcontract entered into with the General Contractor.

It should be noted that according to the Commercial Code of Ukraine, a general contractor may, upon the customer’s consent, engage subcontractors as third parties to perform works according to the contract, provided that it remains liable to the customer for the results of a subcontractor’s work. In such case, the contractor becomes a general contractor towards the customer, and it acts as a customer towards subcontractors. A general contractor may engage any number of subcontractors for any type of work only upon the customer's consent. If all works under the project are assigned to a subcontractor(s), the general contactor retains its coordination functions while organizing the whole complex of works and carrying out the general management and supervision over such works.

Licensing and certification of construction activity

As of 19 March 2020 the Legislation required that an individual/legal entity, to perform the construction activity, obtain a license (the "Construction License") in accordance with Decree No.256.

However, from 20 March 2020 the construction activity may be performed based on the required certification. To date, there is no detailed regulation in this respect. Therefore, currently, only legal entities which obtained licenses prior to 20 March 2020 may legally perform the construction activity in Ukraine.

State Authorities

According to the Legislation, prior to 19 March 2020, the only competent authority in the construction sphere was the State Architectural and Construction Inspectorate and its territorial bodies (https://dabi.gov.ua/).

However, according to the Resolution of the Cabinet of Ministers of Ukraine “On Liquidation of the State Architectural and Construction Inspectorate and Amendments to Some Resolutions of the Cabinet of Ministers of Ukraine”, No. 218 dated 13 March 2020 (which came into force on 19 March 2020), the State Architectural and Construction Inspectorate (SACI) was liquidated and a new central executive authority, namely the State Town-Planning Department of Ukraine (STPD) was created.

The tasks of STPD include the following:

- the provision (receipt, registration) of documents providing the right to carry out preparatory and construction works, the refusal to issue them, or their annulment (abolishment); and
- commissioning of a completed construction.

In addition, the Resolution of the Cabinet of Ministers of Ukraine “On Optimization of the Authorities of the State Architectural and Construction Control and Supervision”, No. 219 dated 13 March 2020, provides for the creation of the following two central executive authorities:

1) the State Town-Planning Inspectorate of Ukraine, responsible for the state policy in respect of state architectural and construction control and supervision; and
2) the State Agency for Technical Regulation in Town-Planning of Ukraine, responsible for the regulation of technical issues in the construction sphere.

The activities of the above new authorities will be coordinated by the Cabinet of Ministers of Ukraine through the Minister for Development of Communities and Territories of Ukraine.

This reform will take some time. In accordance with the above mentioned Resolutions, the reform’s algorithm was as follows:

- March 2020 – the liquidation of SACI and the creation of STPD;

- June 2020 – the creation of the State Town-Planning Inspectorate of Ukraine and launching a new registry; and

- September 2020 – launching of the State Agency for Technical Regulation in Town-Planning of Ukraine.

To date, the reform has not been completed and the State Architectural and Construction Inspectorate (SACI) and its territorial bodies are still operating while the above mentioned new authorities are in the course of their creation.

Requirements for general construction agreement

According to the Commercial Code of Ukraine and Decree No. 668, a general construction agreement must be executed in a simple written form and contain the following essential terms:

-              names and details of its parties;

-              place and date of its execution;

-              its subject matter  (the description of facilities to be constructed thereunder and the list and types of works to be performed in accordance with the design documentation);

-              terms of the beginning and completion of works thereunder;

-              its price;

-              rights and obligations of its parties;

-              procedure to secure obligations thereunder;

-              conditions for insurance of an accidental demolition of, or damage to the facility thereunder;

-              procedure for granting of the design documentation, resources and services;

-              procedure for involving subcontractors;

-              requirements for the organization of works;

-              conditions on author and technical supervision over works;

-              sources and procedure for financing construction works;

-              payment terms for completed works;

-              procedure for the acceptance of the facility/construction/works;

-              guarantee terms for completed works, and the procedure to address shortcomings, if any;

-              responsibilities of its parties (compensation for damages);

-              dispute resolution; and

-              provisions for its changing and termination.

In addition, the Legislation provides for a mandatory annex to a construction agreement, namely "Calendar Schedule of Works". Finally, a general construction agreement can be notarized, if the parties opt so).

Author and technical supervision over construction activity

According to the Construction Law, the construction activity is subject to author supervision and technical supervision.

Author supervision must be performed by the designer/author of the project based on a separate agreement with the customer.

Technical supervision must be performed by the relevant representative of the customer or based on a separately executed agreement.

Both author supervision and technical supervision must be performed during the whole construction procedure.

Procedure for commissioning

According to the Construction Law, once the construction is completed, its commissioning shall begin.  "Commissioning", in fact, has the following two meanings:

(1)   Technical commissioning (or so-called "test works") during which the following aspects of the construction must be checked and tested: 

1. Test on towers (dimensional inspection, coating, etc.);
2. Test on electrical components (generator, transformer, converter system, etc.); and
3. Test on mechanical components.

Technical commissioning/test works are aimed to check whether the equipment operates properly and whether it is a necessity to change any piece of equipment to another as well as to verify the required capacity. In addition, the technical commissioning is performed in order to check whether wind turbines are installed correctly and ready for the energy production.

It is also critical to check the power curve (i.e. the relation between wind speed and the power output of wind turbines) to confirm that a wind farm produces as much energy as expected; otherwise, the basic assumptions behind the business model of the project will be wrong.

It should be noted that technical commissioning must be performed by the general contractor. This is clearly stipulated by Ukrainian legislation. Such commissioning can be performed for each wind turbine separately or for the whole wind farm (depending on what is indicated in the construction project).

(2)   Legal commissioning

According to Decree No.461, there are two different procedures for commissioning of the CC1 and CC2 complexity category objects.

CC1 complexity category objects may be commissioned based on a declaration of readiness for operation (declaratciya pro gotovnyst objecta do ekspluataciy - in Ukrainian).

In order to commission CC2 and CC3 complexity category objects, the customer must prepare and submit to SACI act of readiness (act gotovnosty objecta do ekspluataciy - in Ukrainian), based on which SACI issues the commissioning certificate (certyficat - in Ukrainian). 

List of documents to be obtained prior to, or for, commissioning

Set forth below is the list of documents to be obtained by the the relevant company (the “Company”) prior to commissioning of construction objects, and documents necessary for the legal commissioning:

According to paragraph 25 of Decree No.461, SACI may request any additional documents in respect of the construction and commissioning from the Company, the state authorities, organizations, etc. while reviewing documents for commissioning a CC2 complexity category object.

Registration of ownership right to newly constructed facilities

After completion of the technical and legal commissioning, the Company has right to perform registration of the ownership right to the wind farm/wind turbine (depends on how it is specified in the design documentation). It is worth noting that commissioning of a wind turbine may not be confused with obtaining the ownership right to the wind farm. Commissioning is the necessary pre-condition for obtaining the ownership right to the wind farm.

For registration of the ownership right, the Company needs to submit to the State Registration Service of Ukraine/a notary the following documents: 

-          documents on the applicant (the applicant’s passport (to be translated and notarized for a foreign applicant)) and tax number; PoA (for authorized applicant acting in favour of the Company) or Extract from the Companies Register (for the Company's Director); and the Company's charter (if any limitations are determined for the Company’s Director);

-          a document certifying the commissioning of a newly constructed facility (for a facility regarded to be a CC1 complexity category object – the relevant declaration, and for a facilitiy regarded to be a CC2/CC3 complexity category object  - the relevant act and commissioning certificate);

-          the technical passport (i.e. inventory) of a newly constructed facility; and

-          a document confirming the assignment of an address to a newly constructed facility.

After the state registration of the ownership right to the relevant immovable property, the applicant receives an Excerpt from the State Register of Rights to the Immovable Property and Their Encumbrances, confirming such state registration, signed and sealed by the state registrar/notary, as the case may be. A new owner (applicant) is considered to be a legal owner of a wind farm from the date of the state registration of the ownership rights to it with the State Register of Rights to the Immovable Property and Their Encumbrances.