UK: Romania And The UK: When Are The Works Taken-Over?

Last Updated: 6 January 2014
Article by Nicholas Gould

Taking-Over, Completion Certificates and Building Permits

The issue of "taking-over" a construction project on completion in Romania always seems to raise the question of whether the works can be said to be taken-over when the contractor has complied with the contract (in terms of substantially completing the works), or whether the works need to have received the Building Permit from the local authority.

The circumstances in which this question arises are always the same. The contractor has, in its view, completed the works and requested taking-over. There is, no doubt, a defects or "snagging" list (assume for the moment that these items are de minimis). However, the employer's or engineer's refusal to take over is on the basis that the Building Permit has not yet been obtained. This is, apparently, required in order for the employer to know that the works are in fact complete (because they meet with the local authority's requirements) and therefore meet with the requirements under the building contract. Thus, until the local authority is satisfied, taking-over can apparently be refused and liquidated damages continue to be deducted.

It is surprising that this argument is encountered so frequently in Romania. Romania is apparently a special case and unlike other countries. This argument is of course a fallacy. While the detail of a country's legislation in relation to buildings that are fit to be used varies, the general scheme is much the same in all developed countries. The building contract between the employer and contractor is governed by its terms. The works are either ready to be taken-over in accordance with the terms of their contract (because as a fact they are substantially complete) or they are not. None of the standard form contracts anticipate that the employer, and in particular the contractor, will be in limbo until a third party local authority decides (using some different standard) that the works are complete in accordance with local legislation. However, can the employer deduct liquidated delay damages until the local authority issues a Building Permit, even in circumstances where the construction is substantially completed or the employer has taken beneficial possession?

Issues

A number of important issues arise. First, it is the terms of the building contract that primarily govern the relationship between the employer and the contractor. The basis of virtually all standard form contracts (and any purpose-written ones or amended standard forms) is that the works are to be completed by a certain date. If the works are not completed, then compensation for the delay, if caused by a contractor risk event, is due to the employer. An extension of time mechanism can relieve the contractor of any delays that are at the employer's risk. These delay damages are to compensate the employer for late completion arising as a result of a contractor's risk. The commercial purpose, of course, of all of these provisions is to encourage the contractor to complete the works in order that the employer has the completed project as soon as possible and can therefore make use of the facility.

The requirements for completion and taking-over the works should be set out in the contract. The general terms may be supplemented by the detail of the specifications or supplemented or amended by particular provisions. For example, the FIDIC Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer "Red Book" 1999 sub-clause 10.1 states that:

"Except as stated in Sub-Clause 9.4 [Failure to Pass Tests on Completion], the Works shall be taken-over by the Employer when (i) the Works have been completed in accordance with the Contract, including the matters described in Sub-Clause 8.2 [Time for Completion] and except as allowed in subparagraph (a) below, and (ii) a Taking-Over Certificate for the Works has been issued, or is deemed to have been issued in accordance with this Sub-Clause.

The Contractor may apply by notice to the Engineer for a Taking-Over Certificate not earlier than 14 days before the Works will, in the Contractor's opinion, be complete and ready for taking-over. If the Works are divided into Sections, the Contractor may similarly apply for a Taking-Over Certificate for each Section.

The Engineer shall, within 28 days after receiving the Contractor's application:

  1. issue the Taking-Over Certificate to the Contractor, stating the date on which the Works or Section were completed in accordance with the Contract, except for any minor outstanding work and defects which will not substantially affect the use of the Works or Section for their intended purpose (either until or whilst this work is completed and these defects are remedied); or
  2. reject the application, giving reasons and specifying the work required to be done by the Contractor to enable the Taking-Over Certificate to be issued. The Contractor shall then complete this work before issuing a further notice under this Sub-Clause.

If the Engineer fails either to issue the Taking- Over Certificate or to reject the Contractor's application within the period of 28 days, and if the Works or Section (as the case may be) are substantially in accordance with the Contract, the Taking-Over Certificate shall be deemed to have been issued on the last day of that period."

Sub-clause 9.4 of the FIDIC Red Book states:

"If the Works, or a section, fail to pass the Tests on Completion repeated under Sub- Clause 9.3 [Retesting], the Engineer shall be entitled to:

  1. order further repetition of Tests on Completion under Sub-Clause 9.3;
  2. if the failure deprives the Employer of substantially the whole benefit of the Works or Section, reject the Works or Section...;
  3. issue a Taking-Over Certificate, if the Employer so requests."

The key to sub-clause 10.1 is that the Taking-Over Certificate "shall" be issued even if there are minor outstanding works and/or defects provided that they will not substantially affect the use of the Works or Section for their intended purpose.

Local legislation

The governing material law, namely in our case the law of Romania, also has very clear provisions regarding the rejection of construction work. The mandatory provisions of Government Decision no. 273/1994 state that the rejection of takeover is only permitted if two cumulative conditions are met:

  1. The defects cannot be remedied; and
  2. The defects that cannot be remedied interfere with one or more essential operational parameters of the works.

The essential parameters of the works are those defined in Article 5 of Law no. 10/1995 regarding the quality of construction, namely:

  1. mechanical resistance and stability;
  2. security in case of fire;
  3. hygiene, health and environment;
  4. safety during the exploitation;
  5. noise protection; and
  6. energy sustainable and heat insulation.

These conditions of Romania's governing law are mandatory and must be respected by the employer, contractor and the engineer, when they decide to accept, to delay or to reject the taking-over of the works. This can be contrasted with any system of local authority Building Permit or building control. Consider building control in the UK as an example.

Building control in the UK is governed by a set of building regulations, which are the minimum standard set by the Department for Communities and Local Government ("DCLG"). These are to cover the design and construction of buildings. The important point here is that they are concerned with the health and safety of the building users, energy and water efficiency, access issues and facilities for people with disability.1 The focus then is on safety, durability, building methods, materials, sustainability of the design and the building process. It is not concerned with a particular employer's requirement. Rather, it is concerned with whether employers, contractors and others completing buildings meet minimum standards.

Planning permission will be required for most works. However, building regulations approval is likely to be required for an even broader range of work. For example, small-scale internal alterations or loft conversions that might not require planning permission will be subject to building regulations. The purpose is to ensure the health and safety of users, etc.

Two procedures are available in the UK for obtaining building approval. The first is a simple building notice procedure. All work can start two days after notice has been given.2 The second procedure is the full plans procedure which requires deposit of all of the drawings for the development with the local authority or an improved inspector. The local authority has five weeks to accept or reject the plans, and this period can be extended to two months by agreement. The benefit of a full plan procedure is that discussions can take place with the local authority in order to resolve any issues that could cause difficulty later in the building process. This is important because local authorities will only issue a completion certificate once the building work has been completed. Plans that are rejected need to be amended in order to meet with local authorities' requirements. In summary, the initial deposit of the plans needs to be full and complete so that they are accepted. Once the works are completed, the local authority will then issue a completion certificate if the completed works appear to be in accordance with those plans and the building regulations.

The Romanian approach is, like that of many other countries, for all intents and purposes the same. Full plans are to be submitted which are either rejected or accepted. A "Building Permit" is issued once the works are completed. In the UK and in Romania, the inspector may visit in order to inspect the completed works. An inspector considers the submitted drawings and then has a brief visit to the completed works. An inspector can only examine, on completion, the visible features of the works. Visits during the course of the works can only be intermittent and limited. Therefore an inspector has only a limited opportunity to consider obviously visible "defects". However, by defects we mean items that do not comply with the local authority's requirements in relation to health and safety, sustainability, etc. An inspector is not at all concerned with the level of detail which does concern the employer or the employer's engineer or architect.

In addition, it is the building owner who needs to apply for building regulations approval of the plans, a Completion Certificate or a Building Permit as the case may be. It is not the contractor's primary responsibility. It is the building owner who must ensure that the completed works are compliant, and it is the owner who has to apply, not the contractor. The contractor could, if the building contract required it, manage the process or act as the owner's agent, but it is the owner who requires the Completion Certificate in the UK or Building Permit in Romania.

Further, the contractor has little control over delays that might be caused by the third party local authority. It is true that the building contract might try to push that risk onto the contractor, but this approach does not really deal with the true issues. Those are that the employer most likely wants possession, and will take possession when the works are substantially complete, regardless of the Building Permit. In addition, even if the owner no longer wishes to take immediate occupation or possession of the building, the test for completion is established by the contract.

Once the provisions of the FIDIC contract are objectively met, then taking-over has occurred. If the owner takes possession, then how can they be suffering any losses that would have been covered by the delay penalties? Clearly, they cannot. If the owner chooses not to take possession when the works are suitable for taking-over, then it is the owner's failure that causes the loss rather than a contractor breach. An application of civil law or common law principles to these situations varies, but in general terms they all amount to the same thing. An owner cannot rely upon its own default in order to claim damages for delay during a period when the building was suitable for taking-over regardless of whether local authority approval or a Building Permit had been issued by a third party applying the same or a different standard than that required under the building contract.

Conclusion

Romania is not substantially different from other countries in respect of its requirement for a new building or structure to comply with building laws and regulations enforced by local authorities. The local authority requires details of the design of the construction at the commencement, and then wants to be satisfied on completion that the works have been constructed in accordance with the approved design, good practice, applicable laws and regulations.

However, it is not possible for the local authority to check every aspect of the construction on completion. Much of the works are, of course, covered up by the finishes. Delays could occur, with approval beyond the control of the contractor. Further, and perhaps more importantly, it is usually not right that an employer can continue to deduct liquidated damages until a third party (with no direct authority under the building contract) has the opportunity to visit the premises and to issue a Building Permit.

1. See HTTP://www.cic.org.uk/services/guidance.php

2. Building Regulation 16(1)(a) and (b).

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