Andriy HREBONKIN | National Economic Strategy 2030: Future changes coming to the construction sector

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At the end of 2020, the Cabinet of Ministers of Ukraine published the National Economic Strategy 2030, which is considered a fundamental roadmap for implementing changes for economic growth and a favorable business climate in Ukraine. One of the two sections of the Strategy – Vectors of Economic Development – defines the reform directions and strategic goals for each individual sector of the economy, including the construction sector.

Therefore, Vectors contain an analysis of current difficulties in the construction industry and ways to overcome them, mainly in two areas: (i) preparation for construction and (ii) construction work, putting into operation and maintenance of facilities.

Direction №1: preparation for construction

As defined in Vectors, today the stage of preparation for construction is characterized by a number of problematic issues, including the corrupt process of obtaining permits, the inability of investors to assess the investment attractiveness of the object and inconsistency of urban planning laws.

Vectors identify several ways to overcome these difficulties. First of all, it is proposed to respond to the current challenges: to complete the State Architectural and Construction Inspectorate of Ukraine reform and to decentralize permitting procedures.

The Vectors also propose radical changes in the functioning of the construction industry. Among other things, it is planned to create an urban cadastre to obtain all necessary information online and provide open access to it. Participants in the construction market have been waiting for the launch of such a cadastre for a long time.

We also emphasized this in the Report “Reforming the regulatory framework of the construction industry of Ukraine”, which was developed by us for the Ministry of Community and Territorial Development of Ukraine (Ministry of Regional Development) with the support of the European Reconstruction and Development Bank presented in 2020.

Vectors also record initiatives to deregulate permitting procedures by transferring functions to private individuals with compulsory insurance, waiving the building permit procedure, and providing online access to all design documents and inputs.

Another important proposal contained in Vectors is the focus on modeling the full life cycle of the object and taking it into account when developing project documentation. The concept of life cycle is already used in many countries. Its fastest implementation will allow to identify and optimize in the early stages of future costs for the construction project. The application of this concept will also help to improve the quality of construction in general and the introduction of long-term savings of resources (especially financial) for the project.

Direction №2: construction works, commissioning and maintenance of facilities

This stage, as noted in the Vectors, is also characterized by certain difficulties, including mass non-compliance with the terms of contracts by developers, a large number of unfinished construction projects, imperfect construction financing process and inability to estimate the future cost of buildings.

One of the ways to overcome these problems Vectors determine the strengthening of control over developers. In particular, it is proposed to introduce insurance of developers to third parties and public control over unauthorized construction. It is also planned to adopt a law that will allow the transfer of unfinished buildings to communal ownership, after which local authorities will attract new owners.

Vectors propose other changes to strengthen the control of developers, such as the creation of an institution of legal entities authorized to carry out urban planning control and the introduction of a system of information modeling of buildings (“IMB”). The last point was also highlighted in our Report, as the non-prevalence of the use of IMB technologies has been holding back the development of the construction industry for some time. It will be recalled that IMB technologies allow to create a complex dynamic computer model that reflects the object of construction both at the design stage and in the process of construction and operation. The use of IMB technologies allows at any time during the life cycle of the property to obtain up-to-date design and operational documentation and its visualization to solve various management tasks.

Another initiative proposed in Vectors is to ensure the openness of various building data. It is planned to minimize the number of intermediaries during the commissioning of the facility and create a “single window” to obtain the original data.

I would like to pay special attention to the lack of codified urban planning legislation in Ukraine, which is defined by Vectors as one of the difficulties to the development of the industry. The issue of the need for codification has been repeatedly raised by the Ministry of Regional Development since 2007, but still remains unresolved. In our Report, at the request of the Ministry of Regional Development, the structure of the Urban Development Code and the issues to be resolved were proposed.

As a result, I would like to note that the construction sector is undoubtedly one of the important factors in Ukraine’s economic development, which is why its reform is extremely important for stimulating investment and improving the economy as a whole. The changes proposed in the Vectors are aimed at solving a number of significant problems that hinder the proper development of the national construction industry. Their implementation will be a guarantee of sustainable economic growth of Ukraine as soon as possible.

Andriy Hrebonkin, Senior Lawyer, Baker McKenzie Kyiv Office

Translated by Herasymiuk Lilya

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