Changes in legislation concerning self-regulating organisations in the sphere of engineering surveying, design and construction

Pepeliaev Group advises that starting from 1 July 2017, changes will come into effect in the Russian Town-Planning Code and other laws in terms of regulating the activities of self-regulating organisations (“SROs”) in the sphere of construction, reconstruction, major repairs (collectively referred to as “construction”), engineering surveying, and design in relation to facilities undergoing capital construction work.

Please find below the main changes.

Membership in a SRO

In accordance with the current legislation, it depends on the type of work, which influences the security of constructed buildings, whether membership in a SRO is needed and whether permission will be given to carry out certain types of work.

From 1 July 2017 on, certificates will expire which permit certain types of work to be performed that influence the security of a constructed building. Whether membership in a SRO is necessary depends on the following criteria being in place at the same time (depending on the type of SRO):

• a contract that has been entered into for performing specific types of work;
• the customer under such contract falling within a specific category (type);
• the specific subject matter and the amount of the obligations under such contracts, as well as the legal status of the entity performing the relevant type of work.

Starting from 1 July 2017, membership in a SRO is necessary if:

1. The work is performed based on construction contracts, or contracts for performing engineering surveys, or contracts for drafting project documentation entered into with the developer, the technical customer, the person in charge of operating the building or construction, or with a regional operator; with a person who, in accordance with the Russian Land Code, has obtained permission to use land or a land plot in governmental or municipal ownership (if contracts are entered into for performing engineering surveys);
2. The subject matter of the contracts concerns construction or engineering surveying work, or drafting project documentation;

Apart from the above criteria, membership in a SRO is necessary:

• in the sphere of construction, if the amount of obligations under each construction contract exceeds RUB 3 million;
• if the relevant contracts are entered into using competitive methods for entering into them and a bidding process (a competitive tender, or an auction) is mandatory under Russian legislation. 

The requirement has also been enacted that the technical customer must have membership in a relevant SRO depending on the area in which such customer is planning to pursue its activities (article 1(22) of the Russian Town-Planning Code).

No membership in a SRO is required if (a) individual categories of legal entities set up by public entities are parties to the relevant contracts , and (b) the contract for performing certain work has been entered into with a person other than those provided for by the Russian Town-Planning Code (including subcontractors).

Also, a legal entity or an individual entrepreneur is exempted from the requirement to acquire membership in a SRO in the sphere of construction if (a) the amount of the obligations under each contract does not exceed RUB 3 million , (b) the individual is constructing an individual residential dwelling , and (c) work is being performed at sites which are not facilities undergoing capital construction work (article 51(17)(1-3) of the Russian Town-Planning Code).

The terms and conditions and the procedure for acquiring the status of a SRO have changed

The minimum number of members allowed in a SRO has been established: no less than 50 members in a SRO in the sphere of engineering surveying and design, and no less than 100 members in a SRO in the sphere of construction (article 55.4(1) and article 55.4(3) of the Russian Town-Planning Code ).

A SRO must, under the procedure established by law, draw up and approve its standards and internal documents as listed in article 55.5 of the Russian Town-Planning Code.

Additional conditions have been established for a SRO in the sphere of construction relating to the newly introduced principle of the regional affiliation of members of a SRO (article 55.4(3) of the Russian Town-Planning Code):

• the members of a SRO must be registered in the constituent entity of the Russian Federation in which the SRO itself is registered (except for foreign entities and entities in whose territory there are no registered SROs of the relevant type, and which may join any SRO irrespective of where it is registered);
• the relevant SRO should not have local subdivisions, standalone branches and representative offices located outside the constituent entity of the Russian Federation in which such SRO is registered. 

The formation of two compensatory funds in a SRO has been introduced

Each SRO must form a compensatory fund to compensate damage caused.

If no less than 15 members of a SRO in the sphere of engineering surveying and design or 30 members of a SRO in the sphere of construction have expressed their wish to participate in entering into contracts using competitive methods for entering into them, then a SRO must also form a compensatory fund securing contractual obligations.

In this regard, a member of a SRO, apart from making a contribution to the compensatory fund for compensating damage, must also make a contribution to the compensatory fund for securing contractual obligations when it enters into contracts using competitive methods for entering into them.

Changed terms and conditions for membership in a SRO

Stricter requirements have been set out for the qualifications and number of employees that a member of a SRO may have. Any member of a SRO must have no less than two experts in organising engineering surveys, design and construction (chief engineers of projects and chief architects of projects) whose job duties include the organisation of the relevant work and whose data are entered in the national registers of experts maintained by the National Union of SROs (article 55.5-1(6) of the Russian Town-Planning Code).

New rules have been introduced for a member of a SRO to make contributions to compensatory funds (article 55.16 of the Russian Town-Planning Code), for instance:

the contributions may not be made in instalments or in any other manner which excludes a one-off payment of the contributions;
a member of a SRO may not be exempted from the obligation to make the above contributions to the compensatory funds of the SRO, including against any claims that such a member may have to the SRO (no set-off of mutual claims is allowed);
the general rule is that the contribution (contributions) may not be made by third parties which are not members of such SRO.

Transitional provisions for Law No. 372-FZ

No later than 1 December 2016, all the members of a SRO should have determined whether they need to be a member of the SRO in question, in pursuance of Law No. 372-FZ, and notify their SRO in writing of: (1) their intention to voluntarily suspend membership in the SRO without subsequently joining another SRO; or (2) their intention to voluntarily suspend membership in the SRO and subsequently to join another SRO; or (3) their maintaining membership in the SRO. The members of a SRO who have not complied with that requirement, subject to a decision of a permanent executive body of the relevant SRO, are excluded from the SRO starting from 1 July 2017. The legal entities or individual entrepreneurs excluded from a SRO may not be admitted to the same or a different SRO for one year (article 55.7(6) of the Russian Town-Planning Code).

The transitional provisions provide that a contribution previously made to the compensatory fund of a SRO may be refunded , and that such contribution may be transferred to the account of the compensatory fund of another SRO if the member of the relevant SRO enters another SRO under the procedure provided for by legislation .

It should be mentioned that legislation does not provide for consequences for those who file a notice of their maintaining or suspending membership in a SRO and entering another SRO after 1 December 2016. Accordingly, we cannot exclude that such a person or entity may be deprived of certain opportunities provided for by legislation, for example, obtaining a refund of a contribution previously made to the compensatory fund of a SRO.

What to think about and what to do

Considering the changes adopted, we recommend making sure that the actual and potential members of a SRO comply with the requirements set out by the transitional provisions to Law No. 372-FZ and town-planning legislation in terms of making a contribution in full, and that the principle of regional affiliation is complied with in the event that capital construction projects are implemented, and that a decision is made that membership in a SRO of a specific type is necessary.

Help from your adviser

Pepeliaev Group’s experts have extensive experience of advising and representing clients with regard to complying with Russian legislation on construction and real estate. Our lawyers are ready to provide comprehensive assistance and legal support in any matters related to the need for a company to be a member of a SRO and for additional contributions to be made to the compensatory funds of the SRO.