The Russian president recently signed a law clarifying regulations with regard to self-regulated organizations (abbreviated to “SRO” in Russian), intended to replace state licensing bodies for the construction industry in the Russian Federation.
The licensing of construction activity in Russia will be abolished from 1 January 2009. Control over construction activity, which was previously exerted by means of licensing, shall be transferred to the SRO. The underlying concept of such change is to transfer control over construction from the state to the SRO as an independent body. During the transition period, until 1 January 2010, contractors with licenses will be allowed to perform construction activities at the same time as companies authorised by the SRO. After 1 January 2010, all constructors will be obliged to join the SRO. The state still reserves the right to establish technical requirements and to supervise construction.
The initial law, adopted in 2007 only envisaged the general concept of SROs and the frameworks of their rights and obligations, whereas the recent changes provided for detailed and specific requirements concerning their activity, including their organizational structure, requirements for membership and supervision of their activity.
Following its adoption, the aforementioned law was largely criticised by major players in the Russian construction industry. The major concern was that the abolition of licensing would decrease the quality of construction in Russia. However, it was envisaged that the positive upshot of these changes would be that the adoption of a mechanism would be more flexible for the new trends and techniques in construction than a governmental body, i.e. it will be possible to exploit the experience of qualified players in the development of construction requirements.
As a result, the recent changes to the Russian City-Planning Code proclaimed that the main purpose of any SRO shall be: to anticipate any harm to human beings, the environment and the historical and cultural heritage of Russia, as well as to increase of the quality of engineering surveys, design, construction and reconstruction. For this purpose each SRO shall adopt: requirements for the issuance of a permit for construction works (design engineering survey), and a system of disciplinary penalties for the non-performance of the above documents by SRO members. Other documents (such as technical standards and business requirements) are permitted, but are not obligatory for an SRO.
Each SRO shall be created for each of the following requirements: an SRO for entities and entrepreneurs performing engineering surveys, an SRO for entities and entrepreneurs performing design and an SRO for entities and entrepreneurs performing construction. All SROs shall be included into a state register.
Each SRO shall maintain a compensation fund with an amount of not less than 500,000 RUR (approx. 13,500 Euro) for each member of the engineering survey or design SRO, and 1,000,000 RUR (approx. 27,000 Euro) for each member of the construction SRO. The compensation funds may be substituted by insurance.
The state will control the activity of an SRO through a special executive body, which shall be appointed by the Russian government. This body shall ensure the compliance of SRO activity with the requirements of the law.
Considering the above, the SRO does not seem to be a very reliable mechanism for replacing licensing. Concerns remain about the reform, given that the amount of the compensation is rather low and the level of state control is unclear. The division between the engineering survey, design and construction may result in a lack of coordination. Members of the SRO will be empowered to a great extent and shall have to meet high standards of trustworthiness. How such trustworthiness shall be measured, remains ambiguous. It is hoped that the biggest players on the construction market will have a vested interest in upholding their reputation thus maintaining a high level of quality. However the law also provides rules concerning antimonopoly. It is expected that the relevant penalties and additional requirements will appear soon.
