construction policy paper

8/3/2019 Construction Policy Paper

1/47


2/47


3/47

1

Agence canadienne dedveloppement international

Canadian InternationalDevelopment Agency

Construction Policy PaperAnd Survey Report


4/47

ConstruCtion PoliCy PaPer and survey rePort2

Tbl o Contnt


5/47

3


6/47


glory o trm n cronym

BEE Business Enabling Environment

Building commissioning Putting the constructed building into operation

EU European Union

GDP Gross Domestic Product

GNI Gross National Income

OSS One-stop-shop

GEL Georgian Lari (currently 1 USD = 1.65 GEL)General limitations Limitations established by national or local legislation

setting the volume, height and other general guidelinesor constructing buildings in dierent areas

Historical-architectural Document describing the construction area in terms oanalytical information historical importance

IBC International Building Code

IFC International Finance Corporation

JSC Joint-Stock Company

LTD Limited Liability Company

NGO Non-governmental organizations

OECD Organization or Economic Cooperation andDevelopment

PTL Power ransmission Line

Self-governance body Municipal legislative bodies (Sakrebulo Municipalparliament)

Spatial development Development perspective o selected construction areas

Master Plan Urban or rural construction development plan settinggeneral guidelines or constructing new buildings

Town planning A document speciying the guidelines or the utureassignment building, such as height, width, depth, etc.. Tedocument is prepared by the authority issuing thepermit.

Urban planning Guidelines or the building (such as height, widht,conditions depth, etc.) that are prepared by the applicant and

submitted to the authority or approval. When theauthority issues urban planning conditions, it meansthat the guidelines specied and submitted by theapplicant are approved by the authority.

US United States

VAT Value Added axCCTV Closed-Circuit elevision


7/47

5

about iC, BP, n Cida

About IFC

IFC, a member o the World Bank Group, creates opportunity or people to escapepoverty and improve their lives. We oster sustainable economic growth in develop-ing countries by supporting private sector development, mobilizing private capital,and providing advisory and risk mitigation services to businesses and governments.Our new investments totaled $16.2 billion in scal 2008, a 34 percent increase overthe previous year. For more inormation, visit www.ic.org.

Tis study has been implemented by IFC Georgia Business Enabling EnvironmentProject, which is ocussed on three objectives: working directly with government toreduce the regulatory burden to business, conducting a nation-wide survey o enter-prises, and improving the legal awareness o businesses.

IFC Business Enabling Environment Project is supported with unds rom BP and itsco-venturers in its oil and gas projects and the Canadian International Development

Agency (CIDA).

About BP

BP is one o the worlds largest energy companies, operating in around 100 countries.BP rst came to Georgia in 1996 and, on behal o its partners now operates three

major pipelines: the Baku-bilisi-Ceyhan oil pipeline (BC), the Western RouteExport oil pipeline (WREP) and the South Caucasus Gas pipeline (SCP). BP alsooperates an aviation uel business Air BP at bilisis International Airport. Youcan nd out more at www.bpgeorgia.ge.

For BP in Georgia this project represents only part o its social investment portoliomostly used to support energy and enterprise development its core social invest-ment themes. Overall social investments rom BP and its partners will continue tobring benets to Georgia and its citizens worth more than $100 million.

About CIDA

Te Canadian International Development Agency is a governmental agency with amandate to support sustainable progress in developing countries to reduce povertyand contribute to a more secure, equitable, and prosperous world. One o itsobjectives is to work with countries in transition to stimulate growth by building sel-sustainability among local people and mobilizing available resources. CIDA supportsoreign aid projects in many countries around the world. For more inormation, visit:

www.acdi-cida.gc.ca.


8/47


excut summry

Te Construction Policy Paper and Survey Report is a product o the IFC BusinessEnabling Environment project in Georgia, produced in cooperation with theMinistry o Economic Development o Georgia. Te paper aims to identiy theregulatory constraints and other actors aecting the construction permit process andthe construction inspection procedures.

he issues discussed in this paper are based on an analysis o the currentregulatory ramework and results o a nationwide study o 92 entities involved inthe construction business, which was carried out by IFC in April-May 2008. Te

scope o the study was limited to currently operating real estate companies andcivil partnerships that had obtained permits or the construction o residential andcommercial spaces under the current legislation. Te permits or residential andcommercial spaces embody over ninety percent o all construction permits issuedin the country. Primary data collection was carried out by means o ace-to-aceinterviews with study respondents.

Based on the study, IFC developed a number o recommendations to be presentedto the government or consideration in the current regulation and subsequently inthe drat Construction Code, which is oreseen as the single legislative document togovern the construction industry.

Te main challenges highlighted in the paper include the ollowing:

Existence o a number o pitalls in the legislation;

Absence o regulation to govern certain issues;

Erratic implementation o various aspects o regulations.

Currently the permit issuance procedure consists o three independent stages and isregulated by Governmental Resolution 140 On Issuance o Construction Permitand Law of Georgia on Licenses and Permits. Te construction works and putting thebuilding into operation is regulated byLaw of Georgia on Supervision of Construction

Activities.

Te legislation pitalls identied in this study concern silence-is-consent principle

included in the Resolution 140 and one-stop-shop principle incorporated in theLaw of Georgia on Licenses and Permits. In particular, the silence-is-consentprinciple was ound not unctioning or the rst stage o the permit issuing procedurenecessary to issue urban planning conditions to the applicant as stipulated by theResolution. Tis is due to the act that the urban planning conditions issued by apermit issuer at this stage orm the basis or developing designs needed or approvalat the ollowing 2 stages.

Te provision in the Decree regarding the use o general limitations o locallegislation to prepare the documents or the second stage i the rst stage is notcompleted within its legal time-rame also cannot be applied, as these limitations inmost cases are vague and subject to the discretion o the planning authority. TisPaper recommends producing master plans o urban development in all major

cities and regions o Georgia to enable the authorities to assess the relevance orequested development parameters with those set by the legislation. As a next step, anenabling clause on silence-is-consent ought to be included in Resolution 140, which


9/47

7

would set the requirement or the authorities to accept the documents or Stage II1unconditionally. Further it is point out that development o planning regulationsand master plans or all major cities to the extent that the urban planning conditionscan be determined by any certied proessional without involvement o planningauthorities, would enable to discard the 1st stage o the permitting process completely.Tis would be the best improvement in the legislation as it would reduce the time othe process by up to 30 days.

Concerning the one-stop-shop principle mentioned above, it is ound that thecurrent permit-issuing system requirements are not in line with this principle asseveral administrative bodies are involved in the issuance o various supportingdocumentation required or the construction permit application process, namely

the Business Registry o ax Inspection providing the abstracts and Public Registryproviding the abstracts on land ownership. It is recommended that the Law onLicenses and Permitsas well as Resolution 140 are changed accordingly to ensureimplementation o one-stop-shop principle. Te latter would reduce the overallburden or entrepreneurs in terms o time and cost spent on dealing with multiplestate institutions.

Further, the Paper discusses a procedure or building demolition or alterationprovided in the Resolution 140. A standard procedure or obtaining all constructionpermits (totaling 60 days), rom new buildings to demolition or alteration o anexisting one, is ound burdensome in cases when the alteration o a building isinsignicant and corresponds to the standard according to which the building

was designed. It is recommended that in cases when there are no material changes

to exterior building elevations the permitting can be eliminated or alteration oprojects, and appropriate regulatory thresholds be established to identiy the cases in

which permitting is unnecessary. Where the permitting is indeed deemed necessarythe permit issuance period could amount to maximum o 30 days.

Other problems discussed in the Paper concern the erratic implementation o variousaspects o permit issuance procedure. It is ound that oten the legally establishedtime-rames or the stages o the permitting process are not observed. Also, there arecases a permit applicant is required to submit documentation, which is unrelatedto the type o the proposed construction and the area, namely in the regionalurban planning authorities usually require the documental proo that there are nohistorical or cultural objects ound on the land subject to construction works. Such

documental proo is obtained by conducting expertise and represents unnecessaryburden or the permit applicants. Tese problems are thought to be attributed tothe lack o administrative power/capacity to enorce a smooth implementation othe procedure and the lack o legal awareness among the government sta dealing

with the procedure. Administrative improvements, such as enhancing the capacityo permit issuing bodies to deal with the increased number o applications isrecommended or improving eciency and timeliness o the procedure. Launchingan inormation campaign, such as providing trainings on the procedure to the sta(especially new) dealing with the permit issuance, designing brochures with detaileddescription o procedure, placing inormation on the Web, etc. was recommended toreduce administrative burden on businesses in terms o collecting the documentationirrelevant to their case.

1 Te Stage II envisages the review o architectural and engineering designs.


10/47


Based on legislation analysis and the survey data the study also identies severalproblems related to construction inspection procedures. Tese includes the ollowing:organizational inadequacies o the state construction supervision body leading toerratic implementation o on-site inspections and increased penalty cases; improperclassication o penalty rates according to the construction location (city central, cityperiphery, rural, etc.) rather than its complexity, associated risk actors, unctionalpurpose, etc; lack o uniormity or items to be inspected, which increases the risk oneglecting some saety-related issues during inspections; absence o licensing systemor proessionals perorming construction activities, which limits competitiveness olocal constructors on international and even the domestic market.

Te Paper provides a number o recommendations to remedy the above-mentioned

problems. Strengthening the capacity o inspection bodies to ensure that constructionsites are inspected as per legislative requirements was recommended. More organizedsystem o architectural-construction inspections would increase compliance

with construction rules and, subsequently, reduce penalty cases. Introducingstandardized checklists or inspections to achieve uniormity o inspections isadvised to guarantee the observance o saety issues o the object. Establishing asystem o private inspections to assess compliance with technical regulations andproject documentation in line with the best international practice is recommended.Te later is thought to contribute to improved saety o constructions perormedin the country. Establishing the more air penalty system, adequate to the level odelinquencies in construction activities, i.e. according to risk actors rather than theconstruction location, is also recommended in this Paper.

Finally, the Paper recommends introducing a proessional regulation/ certicationsystem or specialists engaged in construction activities in order to increase qualityo constructions and also increase competitiveness o local construction specialists ondomestic and international markets. It is acknowledged that licensing o constructorscannot be achieved at present due to the absence o national construction-technicalregulations. he latter is a pre-condition or organizing national qualiicationexaminations through which the qualiication o experts could be ascertained.However, pending completion o national qualiication examinations, it isrecommended that perhaps licensing o experts could still be done based upon (1)completion o an appropriate course o study in a recognized institution o higherlearning, (2) apprenticeship or years o practice.

Te Paper is divided into our parts. Te rst part provides an overview o theconstruction sector in Georgia, including a discussion o the various entities involvedin construction activities. Te second part describes the regulatory ramework,the past challenges and key legislative changes that need to be undertaken toremedy existed shortcomings. he third part, the core o the report, analyzesthe current legislation and the key problems identied in the study, and providerecommendations to help address the issues. Te last, ourth part, discusses thecentral eatures o the drat Construction Code and describes the innovations oeredby the Code.


11/47

9

i. Orw o th Contructon sctor

1.1 Evolution o the Construction Industry

Te construction industry is one o the astest growing sectors o the Georgianeconomy. It contributes around 7.8 percent o GDP and employs 7 percent othe countrys labor orce (about 140,000 people).2 According to ocial statistics in2007, the construction sector saw a 14 percent rate o growth, driven by dynamismin the residential and commercial real estate market and inrastructure. Specically,the increase in the sector was acilitated by the construction and rehabilitation oairports, schools, health acilities, motor roads, and highways nanced through budget

allocations and international sources. In addition, the housing boom o recent years,led solely by the private sector, signicantly contributed to the growth observed in thesector.

Residential and commercial spaces are both in high demand in the Georgian realestate sector. Currently all new residential complexes oer space or businesses.Customers, especially in the residential sector, buy fats as an investment in a highlyspeculative market. In a matter o ew years, apartments in new construction projectsin bilisi have jumped rom $150 per square meter (m2) to a reported $1,500, whilecommercial real estate reached $9,000/m2 in central locations.3

Annual sales in the real estate market increased by 170 percent (measured in squaremeters), while the markets total value reached about $1.8 billion in the last year.4

Over the last ew years, the average increase o turnover in building construction isequivalent to a 47 percent across all enterprises, with larger enterprises seeing a 68percent increase, versus a 43 percent increase or small and medium enterprises.5

Te largest share o construction output, equivalent to 63 percent, is in the bilisiregion. In 2007, construction permits or 1.5 million square meters o usable space

were issued in the capital (see Figure 1). In recent years, the construction boom alsohas been observed in the Autonomous Republic o Adjara and in Georgias recreationaland vacation areas.

Construction Permits in Tbilisi (by m2 of space)

Source: Mntry o economc dlopmnt o gor

mln.m

2

3.0

2.5

2.0

1.0

0

0.5

2004 2005 2006 2007

1.5

Figure 1. Permits or construction space in Tbilisi

2 State Department o Statistics, 2007.3 Georgian Business Magazine, AmCham News, Issue #3, June-July 2007.4 Invest oday, issue #410, 30.05.08 05.06.08.5 State Department o Statistics, 2002-2007.


12/47


6 Based on inormation rom several construction companies operating in Georgia.7 Te partnerships are dened by the Civil Code, Chapter 25, Article 930. In most respects, these

housing partnerships are the equivalent o housing cooperatives or mutual housing associations inother countries.

In line with the increased selling prices, the cost o construction in recent years hasnearly doubled, rom $120/m2 in 2004 to $250 in 2008.6

Te construction business continues to attract increasing investment and banks arecontinuously increasing their lending to the sector, oering a variety o mortgagepossibilities, including longer terms and more acceptable conditions. Commercialbank credits to the construction sector in 2007 increased over the previous year by77 percent, the largest sectoral increase as compared to other sectors o the economy.

1.2 Construction Companies

According to the Ministry o Economic Development, currently there are 88 real

estate companies operating in the country. Tese are mostly located in bilisi butengaged in construction projects both in bilisi as well as the other parts o thecountry. In addition, the IFC study ound that there were about 30 local companies(including limited liability companies, joint-stock companies, and individual entre-preneurs) operating outside the bilisi region in 2007.

Te majority o residential multi-storey construction projects carried out by realestate companies are ormally implemented through housing partnerships, which aregroups o individuals created under law and associated or the purpose o developingtheir own immovable property.7 Te partnership agreement, organized by the realestate company, denes the management structure o the housing partnership andthe person to be responsible or its management and representation typically anemployee o the real estate company. Partnership members are not registered as indi-

vidual entrepreneurs, and the partnerships are not legal entities.

Te real estate company is responsible or the architectural design and or obtainingthe construction permits. Once the permit is obtained, the company can begin tostart selling the space o the planned residential/commercial building.

Any individual intending to acquire a property can become a partner by entering intoa partnership agreement and purchasing shares in the uture property. In some cases,contributions by the partnership members can also come in the orm o a land plot orconstruction materials. A partnership agreement determines the shares (space) in theproperty to be allocated to each partner ater completion o construction. Partnershipmembers buy their shares in the property at market prices, and the income rom suchtransactions is gained by the real estate companies.

Construction o residential multistory apartments is today mostly nanced by suchpartnerships. As shown by the present study, nearly 75 percent o permits or residen-tial constructions in bilisi and Batumi in 2007 were issued to partnerships. Tis ar-rangement is preerred by real estate companies, because the cost o the constructionis nanced through contributions by the partners rather than borne by the company.

In some cases, the real estate company can also provide payment to the constructioncompany in the orm o shares in the sale o the building.


13/47

11

8 Currently the technical examination can be perormed by any expert who meets the requirements setby the Ministry o Economic Development. Te expertise includes: 1) Geological engineering and/orHydro-geological engineering; 2) Foundation; 3) Main and bearing structures.

9 Law on Grounds or Issuance o Licenses and Permits or Entrepreneurial Activities (May 14, 2002).10 Law o Georgia on Construction Permits (June 25, 2004).

Box 1: Main Drawbacks o the Construction Regulatory Framework (1991-2001)

althouh th contructon prmt w fn, th unc procur or th prmt w not rult by nynormt ct.

Th xtn ytm llow th archtcturl inpcton to trnr up to thr (30 prcnt) o th mount opnlt collct to t ccount t th Trury dprtmnt.

a tchncl xmnton o ll contructon projct w rqur by th tt, n w crr out by prtcompny unr tt fnncn. Howr, nthr th tt nor th compny w hl rponbl rult o poorly conuct xmnton (.., tr th projct h uccully p n xmnton, th objct turn outto b hzrou). urthrmor, u to th monopoltc poton o th compny, bun wr unbl to nottth rc or th tt xmnton.8

Th mntory tchncl xmnton lo ppl to projct crr out by nul wth n tmt xpntur low 0.5 mllon geL (0.3 mllon Usd). Th llton not tnuh btwn lr-cl contructon projctn projct tht wr not complx nor po nfcnt ll o rk.

ii. Contructon sctor Rultory rmwork

2.1 Regulatory Framework o the Early Post-Independence Period

Ater independence in 1991, the Georgian government ocused on creating a soundbasis o legislation to support the growth o the private sector. However, contradictoryand incomplete legislation and requent amendments created multiple administrativebarriers. For example, there were 18 normative acts regulating the construction sectorcovering three types o procedures: a) permit issuance, b) state supervision o con-struction and c) commissioning o constructed objects. Te existing normative actshad multiple drawbacks, which can be summarized as ollows:

Approvals rom several state institutions were required to obtain a permit;

Numerous legislative gaps provided room or multiple interpretations o certainnorms;

Some normative acts were contradictory.

Te system created conusion or any person or company engaged in constructionactivities, including obtaining permits or undergoing construction inspections (seeBox 1).

2.2 Recent Developments o the Law

In 2002 and 2004, some initial improvements in the regulatory ramework wereadopted: the construction permit was dened as a separate type o permit, and basicprinciples, types, and terms o the licensing and permit system were also determined.9Furthermore, these reorms also established the one-stop-shop determining therelationships between the permit issuing bodies and secondary agencies issuingthe requested additional documents via OSS.10 Te penalty allocation system inconstruction inspection was changed. Now the penalties are transerred to the state


14/47


budget o Georgia, regardless o the nancing source or the orm o constructionobject ownership. Tus, the construction supervising body no longer has a nancialincentive to raise dubious penalty cases.

Fundamental reorm o the entire licensing system o the country was carried out in2005 when the rameworkLaw of Georgia on Licenses and Permitswas adopted. Te lawintroduced two major principles in the procedure or licenses and permits issuance:

One-Stop-Shop principle Te issuing body itsel ensures approval o additionallicense/permit terms by another administrative body;

Silence-Is-Consent Te issuing body must approve or reject the applicationor a license or a permit within a set timerame rom the date o submission o the

application. I a decision is not made within the set time, the license / permit shallbe deemed granted.

Te law applies to a comprehensive list o licenses and permits, including construc-tion permits. It governs the regulatory ramework o licenses and permits and sets therules and procedures or issuance, amendment, and revocation thereo.

o encompass the additional licenses and permits not covered under this list, theGovernment o Georgia adopted Resolution 140 on Construction Permit IssuanceProcedure and Permit erms, August 11, 2005. Te Resolution, currently the nor-mative act covering all construction permits, ensured enorcement o requirementsand principles o the Law of Georgia on Licenses and Permitsand, in addition, denedthe ollowing:

Constructions activities not requiring a construction permit, or or whichpermits are issued through a streamlined procedure;

List o buildings o special importance 11;

Permit issuing bodies; 12

Stages and timerames o permit issuance.

Resolution 140 is seen as an interim normative act. A drat Construction Code13 willbe the single legislative act that consolidates all construction regulations, startingrom construction planning issues through building commissioning (issuanceo a certicate o occupancy). Tis Code, in development since 2005, will replaceResolution 140 ater its ocial adoption. Te main eatures o the Code are discussedin the last chapter o this paper.

Resolution 140 has been amended 12 times since 200514 in anticipation o the newConstruction Code. Te amendments urther streamlined the issuance procedure orconstruction permits and other reorms expected in the drat Code. Te most recent

11 Airports, stations, bridges, motorways, hydropower stations, masts, etc.12 Te permit issuing bodies include the ollowing: municipalities, which issue general building permits

with the exception o bilisi municipality, which also issues permits or cultural monuments con-structed within the bilisi region; the Ministry o Culture and Sport, which issues permits or culturalmonuments located outside bilisi and the Ministry o Economic Development, which issues permitsor objects o special importance.

13 Te Construction Code has been designed on the basis o Resolution 502 on Measures Related to

Drating the Law o Georgia on Construction Code o Georgia (Oct. 26, 2004).14 Amendments to the governmental Resolution 140 rom: Sept. 1, 2005 N151; Dec. 1, 2005 N214;

Jan. 23, 2006 N16; June 20, 2006 N115; Aug. 23, 2006 N160; Aug. 30, 2006 N169; Oct. 7, 2006N187; Feb. 22, 2007 N39; Mar. 28, 2007 N66; May 10, 2007 N91; May 16, 2007 N102; Mar. 10,2008 N53.


15/47

13

Box 2: Two key amendments and supplements to Resolution 140

Resolution 115 o June 20, 2006 established a new rule or commissioning completed premises

Th uthorty to common buln w trnrr to th prmt ur, bolhn th prctc o crtn -hoccommon or th purpo. Th h rmo th n to obtn multpl ntur or buln commonnrom th common mmbr, contn o ht rnt mntrt bo wll rprntt o rouNgO n npnnt xprt. Th prctc w oo ourc o corrupton n not ny lu to thpurpo o th procur.

Buln commonn bcm rul proc, crr out n two t ubjct to npcton: urn prmtunc n prmt crtfct. Prouly, buln commonn w crr upon complton o th contructon byth bo-mnton -hoc common.

Th tmrm or buln commonn w tnrz to 30 y or ll typ o prm. Prouly, th wn unronbly prolon proc 30 or 60 y pnn on th typ o prm.

Resolution 160 o August 23, 2006 established a new rule or mandatory state examination

Only th buln o pcl mportnc bcm ubjct to mntory tt tchncl xmnton.15 Th rul ormntory xmnton r fn by th Mntry o economc dlopmnt o gor.16

Th roluton xpn th numbr o ntt llow to conuct th tt tchncl xmnton to ll pron whomt th rqurmnt trmn by th Mntry o economc dlopmnt. Th chn h opn up th pobltyor comptt prcn ru th prou prctc, n whch prc wr tblh by th tt xmnton boy.

Changes in the construction industry regulatory ramework implemented in 2005 sig-nicantly reduced the time and number o procedures required to obtain a construc-tion permit in Georgia. Following these changes, the average number o proceduresneeded decreased rom 29 to 17, and the average time required went rom 285 to 137days.17 From 2004 to 2006, the number o construction permits issued has increased4.4 times and employment in the sector has doubled. Output in the constructionsector has tripled. Georgias ranking in the World Bank/IFCs Doing Business Survey2007 in the Dealing with Licenses category improved rom 42 to 27.

number of employed persons160,000

120,000

0

40,000

2004 2005 2006 2007

80,000

Figure 2. Employment in the construction sector

amendments to Resolution 140 made in June 2008 are expected to come into orce inNovember 2008. Te main changes refected in the latest amendment are discussedin Chapter 3.6 o this report.

15 Various normative acts governing the procedure o mandatory state inspection was abolished (July18, 2006).

16 Dened by Ministerial Order 1-1/823 (August 24, 2006).17 Doing Business, 2007.


16/47


iii. ollown th 2005 Rorm

3.1 Current Procedure to Issue a Construction Permit

Resolution 140, which ensures enorcement o the requirements and principles othe Law of Georgia on Licenses and Permits, sets out a general, three-stage process toissue a construction permit. Each stage represents an independent administrativeproceeding with a specied time rames:

Stage I Establishment o the urban-planning conditions by the issuing authority,which species guidelines or the proposed building (previously calledArchitectural Planning Assignment): 30 working days;

Stage II Approval o an architectural-construction project on the site: 20 workingdays;

Stage III Issuance o construction permit: 10 working days.

Tis process applies to all types o construction projects, including inrastructureprojects. A simplied procedure or certain structures (booth/stands, advertisementstructures, ences, sidewalks in public areas, etc.) is also dened by the Resolution.

Te permit issuance procedure starts with the submission o the application andsupporting documentation to the proper permit issuing authority, to obtain the urbanplanning conditions. Permit issuing bodies dier according to the specics o the

constructed object, including its size, designation (buildings o special importance,object o cultural heritage) and geographic location. Te urban planning conditionsissued by the authority at the rst stage o the construction permit procedure includethe ollowing:18

Te limits or the building size specied as K1, K2, K3 ratios (K1 ratio: themaximum allowed space or building on the specied area, K2 ratio: the totalspace capacity o the building, and K3 ratio: maximum allowed space orbuilding surroundings such as plants, trees, and premises);

Site-specic design directions.

Tis rst stage o the permit issuance is nalized within 30 days ollowing the receipto the application. During this period, the authorities must approve or reject theproposed site design.

Within three days ollowing the submission o documentation, the issuing authorityshould inorm the applicant o any inconsistencies ound during the primary reviewo the application. Te permitting process does not start until these inconsistenciesare removed by the permit applicant.

18

Beore introducing amendments to Resolution 140 on March 10, 2008, urban planning conditionsalso included inormation on technical conditions i.e., the possibility or connection to engineer-ing-utility networks (place, type, and capacity o the connection), obtained by the applicant romutility companies. Te above-mentioned amendment made this inormation obligatory only whenputting completed premises into operation (commissioning). Tis change has spared considerabletime and nancial resources or entrepreneurs during the permit issuance procedure.


17/47

15

Ater accepting the application, the issuing authority must publish a notice on thesubmission o documents or public review. Te applicant, in turn, must post an o-cial notice in a visible place on the site, indicating the possible construction works andthe unction o the building.19 Any person is entitled to present a written comment

within a period o 20 days ollowing the submission o the application or publicreview. Within seven days o this deadline, the permit issuing authority is required tohold a hearing o written comments. At the end o the rst stage, the authority issuesthe urban planning conditions that outlines the guidelines or the project.

Te applicant must then prepare the architectural-construction project essentiallya schematic presentation o the project and its main eatures, including site layout. Inother systems, this stage o the process might be called land use, location permitting,

or site plan review. Te documentation required or Stage II is essentially a largescale elaboration o site planning, massing, building elevations, utility connections,landscaping, access and other project parameters short o actual construction plans.Te architectural-construction project is usually prepared by private designers and,as shown by the present study, the preparation takes, on average, 1.5-2 months. Anapplicant is required to ensure the compatibility o the project documentation withthe specications approved during the rst stage. Te issuing authority has 20 daysrom submission o the documents to approve or reject the project at the secondstage.

Ater the architectural-construction project has been approved, the issuing authorityhas 10 working days to issue the construction permit. Te authority also issues anadministrative act on the construction permit and certicate, which species the

construction stages or the buildings/structures. At the completion o each stage, theproject is subject to inspection by the State Supervision Oce.

I the applicants request is denied at any stage o the permit procedure, the issuingauthority must immediately provide the applicant with an explanation o the reasonsin writing. Reusal can occur i an application and accompanying documentssubmitted by the permit applicant do not meet the legal requirements and they havenot been corrected by the applicant within the timerame set by the administrativebody.

Te applicant can appeal this decision at a superior administrative body and urtherin the court.

Te silence-is-consent principle applies to the permits process. Tereore, i theapplicant is not notied o an extension or rejection o his or her application by theissuing authority, the request is considered granted at every stage o the process.

Figure 3 illustrates the process map or construction permit issuance.

19 In the case o reconstruction or dismantling, the message board is placed on the respective building/structure.


18/47


Required Documentation Source/Responsible Party

Ctrl mp o th ln prcl n ltn rom th PublcRtry

National Agency o PublicRegistry

authorzn ocumnt crtf by th notry, th pplcton fl by rprntt o th ownr

Notary

stutonl pln o th projct trrtory wth crpton outur lopmnt o th r

Private company orspecialist

Toporphc roun n th pln o th projct trrtory Archive o the CityService o Urban Planning

Tchncl pcfcton o th buln/tructur, nclun t

purpo, mnon, n output cpcty. atonlly, ornutrl buln numbr o t/tn; or publc buln numbr o prtmnt; or tnmnt hou th lonprmtr o locl nnrn-utlty ntwork o th unt

Architect

Photo o th buln n murmnt rwn, th nrqur th mntln o n xtn buln wthn culturlhrt n monumnt prrton zon

Applicant

Stage I.

Urban PlanningConditions

30 Working Days

an pplcnt ubmt rqut wth upportnocumntton or thunc o th urbnplnnn conton

wth th ttchocumntton


an rchtcturl-contructon projct Private designer ordesigning company

explntory not wth tl nc o th projct compt-blty wth th n plnnn conton

Private designer ordesigning company

an mntrt ct on th tblhmnt o urbn plnnnconton

Permit issuer

ennrn-olocl mnt Engineering geologycompany

dtl bout th plcmnt o th publc notc o thpropo projct wth th photo ttch

Applicant

Toporphc mtrl Archive o the City Serviceo Urban Planning

Stage II.

Approval oArchitectural-Construction

Project20 Working Days

an pplcnt ubmt rqut or pprol o thrchtcturl-contructonprojct tothr wth thttch ocumntton


an rchtcturl-contructon projct n th ollown projctocumntton

Private designer ordesigning company

b n ounton o th buln/tructur;

tructurl unt o th buln/tructur;

ntrnl ntwork n pplnc ncry or unt;

xtrnl ntwork n pplnc ncry or unt;

tchnolo ncry or unt;

pln o th ornzton o contructon work.

Rcpt crtyn pymnt o th contructon prmt Bank

Th urton o contructon work, commnurt wth thprojct ocumntton

Designer

Stage III.

Issuance o

ConstructionPermit

10 Working Days

Figure 3: Process Map or Issuing a Construction Permit


19/47

17

20 Exceptions are constructions o special importance and within cultural heritage preservation zones,natural monuments and preserved territories. For these, timelines can be extended or the ull periodo each stage. In addition, i the proposed activity poses a high level o risk or health and saety orotherwise concerns a wide range o state and social interests, the issuing authority can le a requestor an extension o the timelines by twice the timerame or each stage o the procedure.

3.2 Main Challenges o the Construction Permit IssuanceProcedure

3.2.1 Administrative proceedings are completed with delays

Te study respondents were inquired about the timeliness o completing dierentstages o permit procedure. 39 percent o respondents reported experiencing delays/extensions during at least one o the three stages (See Figure 3 above). One out othree o those respondents who completed the procedure on time mentions thatseveral visits to the issuing authority were required to achieve the timely completiono the procedure.

By stages o the permit issuance procedure, one out o ve applicants receivedthe urban planning assignment in an average o 49 days ater submission o theapplication 19 days more than the legally established 30-day limit. Delays are evenmore requent in the ollowing stages o the issuance procedure. Nearly one-third othe surveyed construction permit applicants report a delay at the second stage. One-quarter o the respondents reported delays o an average o 16 days at the third stage.

Figure 4 shows the level o compliance in completing the three stages o the issuanceprocess in and outside bilisi. Te indicated delays relate to prolonged processo completing the stages excluding the cases o procedure extensions, which isstipulated by the legislation. Te issuing authority is entitled to extend the time orcompletion o each stage by up to hal o the allowed period, so that the total periodo extension or the entire process cannot exceed 30 days. 20 I an extension is needed,

the issuing authority must notiy the applicant within three days ater hal the timeperiod has elapsed.

Te majority o respondents that were delayed at the rst stage mentioned that,contrary to the law, the reason or the delay was not communicated by the authority.

At the second stage, respondents cited a prolonged project review period and theneed or modication/correction in the project as the main reasons or delay.

100%

80%

0%

40%

20%

60%

3rd stage2nd stage1st stage

Figure 4. Delays in completing the stages o permit issuance procedure (withoutextensions)

Tbl

Out Tbl

% cases

27%

9%

40%

23%

8%

35%


20/47


Delays were observed also in completing the primary review o applicationdocumentation. Tis was mentioned by slightly more than a quarter o the surveyedrespondents. Te average time-rame or the primary review o documentation, ater

which the applicants were inormed o inconsistencies, was eight days versus legallyestablished 3 days. Tese cases were more oten reported in bilisi (38 percent)rather than outside the region (7 percent), perhaps due to the higher number opermit applications, greater degree o bureaucracy, etc..

Te study showed that the extension o timelines and/or delays in the permit issuance

is a common trend throughout the country. Te average interval between the day osubmission o a construction permit application and the day the permit was granted isequivalent to 95 calendar days, which correspond to an average o 70 working days.21

21 Several actors were thought to be linked with the delays in obtaining the permit. Te ollowing ac-tors were tested or correlation analysis to establish the relationship between them, such as rm wealthmeasured by turnover; rm size measured by number o employees; experience, in terms o the numbero permits obtained by the respondent; location o the applicant (bilisi/outside bilisi). A relation-ship between the rst three actors and the length o permit issuance procedure was not proved by the

analysis, as the correlation coecient was not statistically signicant. Te ourth actor, location o theapplicant, however, was ound to have a statistically signicant correlation with the average number ocalendar days required or obtaining permits. However, the low correlation coecient obtained in thiscase (Pearsons correlation coecient equals 0.27, with 2-tailed signicance at the 0.05 level) indicatesonly a weak relationship between these two variables. Tus, the procedure is not necessarily extendedor the companies outside bilisi as compared to those obtaining permits in bilisi.

Box 3: Economic Impact Estimation Methodology

Th ky lmnt n th tmton nclu th ollown:

ar tm pnt on mntrt procur;

ar ly nt proft;

rquncy o unrtkn th procur;

Numbr o frm ct nnully by th procur.

Th nctor u n clculton prtn to th ury ntrpr (jont-tock, LTd, ol proprtor) rthr thnprtnrhp or phycl pron. Th lttr wr xclu rom th nly no proft t w nqur mon thmTh tmton wr m on th b o rport rom xty-ht (out o 73) compn tht h prmt obtn n2007, th lt complt fcl yr.

100%

80%

0%

40%

20%

Tbilisi

60%

Outside Tbilisi

Figure 5. Delays in completing primary review o application documentation

% cases


21/47

19

3.2.2 Aspects o the permit procedure that inuence time and costs

Te interviewed companies were asked to provide their opinions on various aspects thatmay infuence time and cost related to the permit issuance procedure. Te ollowingactors were considered:

Project size;

Central location o the project;

Project location in a zone o cultural heritage;

Project location in a commercial area;

Administrative resources or special personal relations with oicers o

administrative bodies;

Personal relations with private companies designated to evaluate specic aspectso the project necessary or the completion o the procedure such as issuingpermits, etc.;

Company size;

Well-known company;

Foreign origin o the client company;

Client knowledge o regulations guiding the procedure;

Having ormer ocials employed in the company;

Willingness o the client to make an unocial payment;

Interest by the state owner o the property in a quick transaction.

Each o these actors was evaluated by at least 70 percent o the respondents. AsFigure 6 demonstrates below, the project size, its location as well as the size o thecompany applying or the permit tend to increase the time needed to complete theprocedure. Namely, the process is extended or projects o a large size, or projectslocated centrally, in commercial areas or in a zone o cultural/historical heritage.

% respondents

100%80%60%40%20%0%

84%63%

52%63%

40%43%

24%27%

20%31%

Large project

Location in the zone ocultural heritage

Central location o the project

Location in commercial zone

Small company

Figure 6. Factors that increase time in the construction permit process

Out Tbl

Tbl


22/47


In terms o actors that decrease time (Figure 7), over 90 percent o respondents saidthat the legal literacy o entrepreneurs reduces the time spent dealing with the pro-cedure. Personal contacts with various stakeholders and large rms were quotedrelatively requently among other actors that reduced the time or obtaining permits.

% respondents

100%80%60%40%20%0%

39%56%

93%93%

43%55%

21%47%

34%38%

21%38%

Client knowledge oregulation

Well-known company

Personal relations with privatecompanies evaluating specifc

aspects o the project

Municipal (state) owner othe property is interested

Large company

Personal relations with of-cers o administrative bodies

Figure 7. Factors that save time in the construction permit process

Out Tbl

Tbl

Some o the opinions o the surveyed entrepreneurs regarding time spent dealing withthe procedure, however, are not armed by the study. Namely, the company size didnot show a statistically signicant relationship with the length o the permit issuanceprocedure. Te actor o well-known o company, which can be related to the years ooperation, also did not show statistical signicance in correlation analysis.

In terms o costs, clients knowledge o regulations guiding the procedure is theonly cost-saving actor mentioned by the majority o respondents rom both insideand outside bilisi. Factors that increased cost were viewed less unanimously. Over60 percent o respondents consider large project as a actor that increased costs.In addition, project location in the zone o cultural/historical heritage, centrallocation o the project, and project location in commercial area were quoted, onaverage, by 49 percent o respondents.

3.2.3. Does the silenceis-consent principle work?

Resolution 140 incorporates requirements and principles o the Law of Georgia onLicenses and Permits, including the silence-is-consent principle, which is applicableto each stage o the permit procedure as mentioned above.

According to the study results, only two respondents o 92 were ocially notied oa delay in the issuance o the town planning assignment, the rst stage o the process.Under silence-is-consent, this means that the remaining respondents who did notreceive any notication o delay could proceed to the second stage without the condi-tions in hand. However, in reality, it is impossible to proceed automatically without

these guidelines, because:

Te engineering designs must ollow specications according to the approvedparameters and technical conditions in the town planning assignment;


23/47

21

In some cases the documents provide necessary general guidelines or urtherdevelopment o the proposed project;

According to Georgian system o issuance o construction permits, the townplanning assignment, represented a detailed document on general guidelinesand requires eorts rom the permit-issuer to drat it. he consent orproceeding to second stage o permit issuance procedure could not be grantedby the permit issuer without providing the town planning assignment per se.Te applicant was not able to proceed or Stage II without having a copy otown planning assignment.

Te silence-is-consent rule also provides that in case there is no response romthe authority ater the expiry o the established period, the applicant may proceedto the next stage, reerring to the general limitations o local legislation to preparethe documents or the next stage. However, this General Limitations22 provisionis also ineective because the limitations in most cases are vague and subject tothe discretion o the planning authority. For example, specic areas in the countrysuch as parks and recreational zones all under regulations that set strict limitationsor construction works.23 However, or most areas the regulations do not providespecic limitations, leaving a high degree o discretion to the local authorities andenvironmental authorities in deciding what is acceptable or construction. Tese gapsin the planning regulations lead to time-consuming bureaucratic scrutiny related tothe issuance o the construction permit.

Given these limitations, it is doubtul whether silence-is-consent is the best prin-

ciple to apply in this situation. Te approach was pioneered in Italy and now worksin over 25 countries. However, this practice is dicult to apply to the constructionpermits procedure, which addresses complex technical issues aecting public healthand saety. Moreover, it is arguably inapplicable in the context o Georgia at this time,as urban planning regulations and documentation are underdeveloped, and rely onocial action or progress in the application process.

Without a realistic mechanism or implementation, the silence-is-consent rule onlyestablishes a declarative principle that merely imposes an obligation on a state ocialto ollow the deadlines. As pointed out by one government ocial, Some clauses aredesigned or not to work at all.

As a temporary solution on March 10, 2008 and eective on September 1st, 2008,

the government made changes to the Resolution 140 On Issuance o ConstructionPermit concerning the town planning assignment, replacing it with urban planningconditions requirement as Stage I completion. he town planning assignmentbeing a document speciying the guidelines or the uture building, such as height,

width, depth, etc. and is prepared by the authority issuing the permit, it can not becompatible with the silence-is-consent principle. Te urban planning conditions

22 It is a widely accepted practice in Georgia to make reerences to other pieces o legislation withoutindicating any specic regulation or law. In any pieces o legislation, such reerences are encounteredrequently. Even i the law reers to a specic piece o legislation, it is possible that the reerred pieceo legislation is not yet in orce or was not adopted at all. In this case, where Resolution 140 reersto general limitation, it is expected that the local governments have local regulations setting thoselimitations or construction within their jurisdiction. However, even i such limitations are adopted,

in most cases they are too general and open to multiple interpretation.23 Regardless o the general limitation set on these areas, such permits are still issued. Tis is based on

the reports o the surveyed companies with 15 percent o total respondents, mentioning o obtainingsuch permits. More than a hal o the respondents who obtained a permit in such zones said that thesepermits were obtained without any diculty.


24/47


are the guidelines or the building (such as height, width, depth, etc.) prepared bythe applicant and submitted to the authority or approval. When the authority issuesurban planning conditions, it means that the guidelines specied and submitted by theapplicant are approved by the authority. Tis change is an eort rom the governmentto make the silence-is-consent principle work. However, the guidelines specied bythe applicant in the urban planning conditions is subject to broad discretion o theurban planning authority Tus, the provision or silence-is-consent is vague and doesnot oer any alternatives to the applicant except to wait or ocial completion o theadministrative proceeding at the rst stage o the permits process.

Recommendation 1:

Recommendation 2(ltrnt toRcommnton 1):

Tere are two dierent recommendations to address this problem:

Develop urban development master plans in all major cities and regions o Georgia.Te new building code should set guidelines or local authorities to provide clear anddetailed limitations o urban developments or all types o areas. Local authoritiescould then make a primary review o the submitted application documentation toassess compliance with the parameters set by the legislation, allowing the rst stageo the permitting process to begin. Following this recommendation, the next step

would be to establish an enabling clause in Resolution 140 on silence-is-consent, toremove inconsistencies with the provisions o the resolution. Tese legislative changesshould require authorities to accept the documents or Stage II unconditionally incase the deadlines or Stage I were not met; the primary review should have servedthe purpose o approving the application or urther proceedings, with detailed expla-nations o the procedures and mechanisms or its issuance.

Increase the authority o issuing bodies. I the general planning and constructionlimitations are not determined in the legislation, the silence-is-consent principlecannot unction and, thereore, is irrelevant in the current permitting procedure. Inthis case, administrative rather than legislative improvements will bring more benetin increasing eciency and timeliness o the procedure. Enhancing the capacity opermit issuing bodies to deal with the increased number o applications is the issue tobe addressed in this case.

Ultimately, however, the question o whether the silence-is-consent rule should beapplied to the issuance o urban planning conditions at the rst stage is the wrongquestion. Te practice o issuing land use or planning parameters on a case-by-casebasis has been abandoned in most developed economies, except in the case o largerprojects or projects that may have adverse aects on their surroundings or environ-ment.

Te objective in Georgia should also be to eliminate the requirement or issuance ourban planning conditions in all but special, clearly dened cases. Georgia already hasa practice o requiring a "Regulatory Plan" or projects that exceed certain thresholds;in many developed countries, this is similar to a special permit or site planningprocedure or exceptional cases. Te objective should be to develop comprehensive,transparent urban planning regulations and documentation to the extent that in mostcases any licensed design proessional can make inormed decisions on the applicableland use and construction parameters without consulting planning ocials. In thatcase, the entire rst stage o the current process could be integrated into the second

stage or most projects, reducing the current time o the procedure by up to 20-30days, a signicant step orward.


25/47

23

Preparing comprehensive and transparent planning and building parameters or allurban areas does not necessarily have to be a long or expensive process, althoughit will undoubtedly require some investment o resources. Tere is good reason tobelieve that in terms o total welare benets reduced costs or both the public andprivate sectors, increased returns to investment, reduction in disputes and court cases,and elimination o opportunities or corruption and rent seeking the investment

would have attractive returns.

An immediate step may be to eliminate the need or issuance o planning conditionsin all areas or which adequate land use and construction parameters have been estab-lished. Tis would require a review o the current regulations and a determination othe adequacy o the present regulations.

Eliminate or urther reduce the processing time or the rst stage o the permitissuing process. Te total time needed to obtain a permit can be greatly decreasedi guidelines exist in the Construction Code that require local authorities to developdetailed planning regulations and master plans or all major cities. As a result, anycertied proessional can determine the planning conditions without the need orconsultations with planning authorities. Te prerequisites should include:

Comprehensive zoning and building regulations, planning maps that set out buildingparameters (e.g., density, height, setback, open space, parking, etc.);

I the regulation and planning documentation are adequate, there is no need or StageI o the permits issuing process.

Silence-is-consent will work well with clearly deined limitations or urbandevelopments Te applicant will have a clear understanding regarding the limits othe desired construction, and prepare the application documents accordingly. I theinitial review by the authorities shows consistency with the general limitations, theapplicant should be able to proceed to the architectural-construction approval stageeven i the issuing authority did not meet the deadlines o Stage I. Tus, silence-is-consent can be applied to Stage I.

Clear application o silence-is-consent or the rst stage will increase compliancewith the regulations and respect or timelines. Tis will encourage the authority tomeet the deadlines in due course.

Improved responsiveness and eciency o the permit issuing agency will reduce caseso delay, which is directly linked to opportunity costs.

Reduced labor costs o companies as a result o ewer visits to the permit-issuing bodyto complete the rst stage o the issuing process.

3.2.4 One-stop-shop principle is not implemented

Although the one-stop-shop is one o the main principles stipulated by the Lawon Licenses and Permits, the current permits system sets requirements that are not inline with this principle. According to this law, to obtain a permit or license rom anissuing body, the applicant must submit documentation rom other administrative

bodies such as the Public Registry or Entrepreneurs Registry. In the case o a con-struction permit, the applicant must sometimes collect supporting documentationrom the Ministry o Environment as well.

Recommendation 3(ollownRcommnton 1):

Key benefts:


26/47


However, the basic idea behind the one-stop-shop principle is that the entrepreneuris in contact with just one administrative entity to obtain all the necessary paperwork.Tis means that the permit issuing body, rather than the applicant, has to ensurecollection o additional documents and approvals o additional requirements romother administrative agencies.

Amend the legislation to ensure that applicants deal with only a single administrativebody to obtain a permit. Te Law on Licenses and Permitsand Resolution 140 shouldbe changed to place the burden or obtaining additional documents on the issuingbody. For example, registration documents rom the Public Registry and Entrepre-neurs Registry as well as the above-mentioned Ministry, should be provided directlyto the permit issuing body based on the latters request.

Ensure implementation o one-stop-shop principle;

Reduce the overall burden or entrepreneurs in terms o time and cost spent ondealing with multiple state institutions.

3.2.5 Permit issuance requires documentation that is unrelated to the

type o building construction

During the rst stage o the permit procedure, a permit-seeker submits an applicationwith the corresponding set o documentation to the permit issuing body. Additionalsupporting documentation is required in the ollowing cases:

construction is perormed in a cultural heritage preservation zone;

the constructed object belongs to a group o buildings o special importance;

the construction permit involves the building o a unit subject to mandatoryenvironmental impact assessment.24

As seen in the study, an applicant is sometimes required to submit documentationirrelevant or the object to be constructed. Te vast majority o permit applications(93 percent) were or construction projects outside cultural heritage preservationzones or in areas requiring environmental impact assessments. Nonetheless,survey respondents reported cases when the authorities requested supplementaldocumentation,25 such as historical-architectural analytical inormation, that is only

relevant or constructions undertaken in cultural heritage preservation zones. AsFigure 8 shows, these cases occur more requently outside bilisi region (13 percent)than in bilisi (4 percent).

Recommendation 4

Key benefts:

24 Objects that are subject to mandatory environmental impact study are those located in protectedterritories and units, which include state preservation zones, monuments o nature, reserve, pro-

tected landscape, and territories o multilateral use.25 Historical-architectural analytical documents, such as graphical designs and text description o the

project are required i a unit o the proposed construction project is located within a cultural heritagepreservation zone or situated near a cultural or historical monument a distance specied as no morethan twice the dimensions o the unit.


27/47

25

100%

80%

0%

40%

20%

Tbilisi

60%

outside Tbilisi

Figure 8. Historical-architectural analytical inormation was required by a permitissuer

Y No

Objects/activities that are subject to an environmental impact assessment by theMinistry o Environmental Protection and Natural Resources are mostly locatedoutside urban zones. However, a high percentage o respondents reported that they

were required to prepare an environmental impact study despite seeking a permit orconstruction in urban areas. Figure 9 illustrates that such cases were more requent inbilisi (43 percent) rather than outside bilisi (19 percent).

100%

80%

0%

40%

20%

Tbilisi

60%

outside Tbilisi

Figure 9. Environmental impact study was required by a permit issuer

Y No

During the questionnaire design stage or the survey, the project held preliminarymeetings with dierent companies, and identiied the problem o increasingcommercial space versus residential space. According to the companies surveyed,authorities oten require that projects include commercial spaces, even when thearea is not suitable or such spaces. Tereore, a priori the permit applicant is orcedto compromise on inclusion o commercial spaces in the proposed project in returnor permit approval.

Te study does not arm the pervasiveness o this problem, as only six respondentsmentioned that an increase o commercial area was requested, out o which our

entrepreneurs said that the area was located in a commercial area.


28/47


Launch an inormation campaign to raise the legal awareness on construction permitrequirements among entrepreneurs and government ocials. Te campaign canbe implemented through trainings to the sta o permit issuing bodies, especiallynew sta, designing brochures with a detailed description o the procedures, placinginormation on the Web, etc.. Te inormation should include a set o requiredobligatory application documents that vary by specic construction zones.

Reduced administrative burden on businesses in terms o collectingdocumentation irrelevant to their case;

Fewer delays, as inormation will be more readily accessible or permitapplicants, which will have a positive impact on prots o businesses involved

in construction sector.

3.3 Uniorm Permit Procedure or All Types o ConstructionActivities

According to established practice, the construction permit procedure in Georgiais the same or any type o construction activity, rom the construction o a newbuilding to demolition or alteration o an existing one. Tis approach is burdensomein cases when the alteration o a building is insignicant and already conorms to thebuilding standard.

In many countries worldwide, including the United States and most Europeancountries, an automatic ling process exists or minor works, which requires thesubmission o a record conrming that all codes and technical regulations havebeen observed. Te necessary documentation is simply led without any processingand approval rom the authority. Enorcement is ex-post, in the orm o thoroughinspections and conormity assessment.

It is possible to argue that ex ante control is necessary in some cases, i an aestheticelement needs to be preserved. However, this would only be necessary in designateddistricts in which architectural control is imposed, and only i there is a signicantchange to the exterior elevations o the building.

Shorten the processing time for demolition and alteration of building by 30 days.In general, where architectural control is not an issue or there are no material changes

to exterior building elevations, it is recommended that permitting be eliminated oralteration projects, and appropriate regulatory thresholds should be established toidentiy those cases in which permitting is unnecessary.

At the proposed stage, the authority could process the application or alteration or de-molition and make its decision without the need to make the applicant pass all threestages. According to best practices, the usual and lengthier approval process is reservedor only major works. And even in the case o major works, in some countries, suchas the United Kingdom, investors may contract a third party inspector in lieu o thenormal permitting process.

Moreover, rom the procedural side, it is not optimal to have the same 60 days ototal processing time or alteration and demolition o existing buildings as or the

construction o an entirely new building. In cases where the ex-ante control is neces-sary to preserve aesthetic conormity, it is reasonable to simpliy the alteration anddemolition permit issuance procedures to one step not exceeding 30 days.

Recommendation 5

Recommendation 6

Key benefts:


29/47

27

Reduced time or processing demolition and alteration applications. Proposed 30days must be enough or the urban planning authority to make a decision.

As constructing a new building requires the same type o permit as demolition andalteration, the applications in all these three cases are led under the same procedureand thereore take the same amount o time. Te dierentiation o the permits willresult in processing o applications separately. It will make permits required in case oa new construction, dierent rom those necessary in cases o demolition and altera-tion. Hence, the obtaining permits or demolition and alteration will become muchless time-consuming procedures.

3.4 Architectural Construction Inspections

Article 16 o Resolution 140 species the various stages o construction or buildings/structures, which are subject to inspection ater completion by the competentauthority o the Architectural Inspection.

Te ve main construction stages determined in Resolution 140:

Footing stage i.e., the stage when the land plot is being prepared or urther1.construction works. At this stage, the construction area around the land plot isestablished, construction inrastructure mounted, the construction area enced,and the ootings o the eventual oundation installed.

Foundation stage the oundation o the building is made in two parts: a) the soil2.is bulldozed; b) concrete structures that orm the base o the building are made.

Ground foor stage oundation concrete structures are nalized, basement and3.ground (zero) foor are completed.

Completion o every ve foors stage an inspection is required upon comple-4.tion o every ve foors above the ground foor.

Roong stage roo o the structure is covered.5.

According to Resolution 140, the completion and inspection o each stage is anintegral part o the permit terms. Permit holders must provide the respectivearchitectural inspections oce with a seven-day advance notice o completion oeach stage. During architectural inspections, the inspector records the projectscompliance with the project documentation on a protocol, which is signed o by

the customer, contractor, and representative o the local oce or architecturalinspection. Irregularities and comments are noted in writing, subject to review andcorrection by the permit holder. In these cases, the protocol o completion o therespective construction stage is drawn up only upon removal o the inconsistencies.

Although the architectural inspectors are legally granted the authority to supervisethe construction process, there is no provision obliging inspectors to carry outon-site inspections at each construction stage. In this regard, Resolution 140provides that in case a construction supervisor does not appear on the constructionsite upon completion o the construction stage, the above-mentioned protocol shallbe signed by the permit holder or a person authorized by him, and the contractor.Te protocol becomes eective rom the date o its submission to the respectiveoce or the Architectural Inspection Oce.

Key benefts:


30/47


Overall, about 90 percent o respondents mentioned that the construction wasinspected. Figure 10 summarizes the requency o on-site inspections or the mostrecently constructed objects.

100%

80%

0%

40%

20%

Tbilisi

60%

outside Tbilisi

Figure 10. Frequency o architectural inspections at the construction site

t ch to contructon

rnomly, trnt t

nr

As seen in the Figure above, architectural inspections occurred at every stage oconstruction or 39 percent o respondents in bilisi and 89 percent o those outsidebilisi. However, irregular, random visits to the construction sites occurred moreoten in bilisi (44 percent) than outside the capital region. Te cases when there

were no visits rom the architectural inspection were also more requent in bilisi (17

percent).

According to a representative rom the Architectural Inspection Oce, the reasonor erratic on-site inspections in bilisi could be attributed to the high volume oconstruction activities in the capital and low administrative capacity o the respectiveadministrative body.

Te low administrative capacity is exacerbated outside bilisi. Except in major citiesand the Adjara Autonomous Republic, there is no ecient administrative structureto carry out the supervision o the construction process. In these areas, multiplepersons are eectively responsible or inspecting the construction process. Te heado the sel-government oces has the authority to carry out architectural inspections.However, he or she does not participate in the inspections process due to the lack

o adequate skills to perorm these unctions. Te ocial who is usually tasked tocarry out inspections, however, does not have sucient authority or such actionsas producing protocols, writing up the actions or compliance in case o violations,and penalizing customers or non-compliance, etc.. Tese must be undertaken by thehead o the sel-government authority, based on reports rom the inspector.

Given the above-mentioned organizational inadequacies, there is no systemic approachto architectural inspections outside bilisi i.e., they are conducted with delays anddo not always ollow the sequence o completion set out in Resolution 140. Te stateinspections unctions are limited to detecting inconsistencies o the construction withproject documentation and imposing nes or violations ound during inspections.Due to the absence o a systematic approach, inspectors perormance is evaluated

according to the number o penalty cases raised during inspections. Consequently, thenumbers o inspections are more requent outside bilisi.


31/47

29

Penalties are imposed or construction perormed without a permit and/or with violations o the regulations or permit conditions. However, 81 percento the inspected survey respondents said that the inspections did not incur anyconsequences. Te remainder reported various consequences ollowing an inspection,such as: ollow-up inspections, penalties, suspension o enterprise activities or criminalliability. For about 5 percent o these respondents there were several consequencesinvolved. Figure 11 illustrates the consequences o an inspection.

100%

80%

0%

40%

20%

No consequence Penalty Enterprise activitysuspension

Follow-upinspections

Administrative/criminal liability

60%

Figure 11. Consequences o construction inspection

% cases

81%

12%6% 5% 2%

Te reported amounts o penalties imposed by inspection vary rom 250 to 21,000Georgian lari. Te reported cost o enterprise activity suspension ranges rom 3,000up to 40,000 Georgian lari.

Penalty rates or violations ound during architecturalconstruction activities areprovided in the Law on State Supervision Over Architectural-Construction Activities(November 14, 1997). hese are deined according to the objects location bysettlements (city center, city periphery, rural, etc.), but do not account or suchaspects o constructions as complexity, associated risk actors, unctional purpose othe object, etc..

Nearly one-third o the respondents who received various sanctions as a result o theinspection led an appeal either with the Architectural Inspection and/or in court.

One out o three respondents reports winning the case in court ater having theirappeal rejected at the Architectural Inspection. Te respondents who did not appealdid not indicate their reasons.

Strengthen the capacity o inspection bodies to ensure that construction sites areinspected as per legislative requirements. Sel-government oces must have the strongexecutive authority to ensure timely, regular inspections are perormed in compliance

with the legislation.

Revise the size o penalties according to risk actors. Penalty rates should be linked tocharacteristics such as type o building, size, and other possible risks related to saetyissues and complexity o the object, and not only the objects location as it is provided

by the current regulation.

Recommendation 7

Recommendation 8


32/47


A more organized system o architectural-construction inspections will increasecompliance o construction rules and, subsequently, reduce penalty cases;

A airer penalty system commensurate to the level o potential harm inconstruction activities will be established.

3.5 Construction Saety/Quality Issues

In the Soviet era, building saety was regulated through compliance with technicalregulations, the normative acts determining the minimum requirements orconstruction-related processes, construction materials and items, premises orparts thereo. For example, constructiontechnical regulations dened how the

oundation o the building should be made and/or how the entrances o the buildingshould be organized, etc..

Currently, saety issues during the construction process and o the construction itselare refected in normative acts regulating the construction sector, such as Resolution140, the Law on State Supervision over Architectural-Construction Activities andthe Law on Spatial Arrangement. Saety issues during the construction process areregulated by Construction Saety Rules approved by Government Resolution 62o March 28, 2007, which determine requirements at the construction site, suchas the arrangement o the site, use o technical equipment and instruments, use omachines, mechanisms, etc..

Although these principles are dened, the regulatory ramework or their enorcement

is not nalized. Regulations pertaining to the saety o constructed building are stillunderdeveloped.

Until new national technical regulations are adopted, Soviet construction normsand rules renewed in 1989 are still used or designing the building structures.hese norms, however, have no legal orce in Georgia, nor do they meet therequirements set or normative acts. It is also acknowledged that these norms andrules are obsolete and do not comply with local market requirements, to say nothingo international standards.

As the Soviet technical regulations cannot cover the new materials, systems,26technologies, machines, and equipment that are currently on the market, constructioncompanies in such cases oten resort to improvisation in conducting construction

works. It should be noted, however, that the strength and stability o buildings is stillachieved through compliance with the norms and standards o Soviet times.

Other issues related to building stability and saety, including a) soil parameters o theproposed construction area and, in some cases, the geological characteristics o adjacentterritories and b) the quality o construction materials, are also addressed partially inthe current regulations. Tese take into account the abnormal risks related to unusualor dicult ground or loading conditions, soil characteristics, groundwater conditionsthat may cause deormation, and the potential impact on surrounding properties.

Tis inormation, as mentioned in Figure 4 above, is required during the rst stageo the permit issuance in the orm o an engineering-geological assessment o the site.Tis inormation is obtained by an applicant rom geological companies.

Key benefts:

26 For example, modern re saety systems cannot be established, which is the major issue in ensuringsaety


33/47

31

Te details on materials to be used in the bearing structures are specied at the nalstages o application procedure in the engineering designs. State inspections ensurecompliance during inspections.

Te majority o companies surveyed reported that quality certicates o the materialsused were checked during the inspection 80 percent in bilisi and 91 percentoutside bilisi.

100%

80%

0%

40%

20%

Tbilisi

60%

Outside Tbilisi

Figure 12. Quality certifcate o construction materials checked during theinspection

Y No

% cases

Regarding other materials used in construction (roong material, construction

llings, nishing materials, etc.), the current regulations do not require that these bespecied in the project documentation.27 Te permit seeker may choose to indicatethe materials to be used in the construction process and their quality indicators.In such cases, they must present the quality certicates o these materials duringinspections upon demand. However, the quality o these types o constructionmaterials is not necessarily linked to building saety.

3.5.1 Project inspection by licensed private proessionals

Until 2005, the author, or originator o the project bore the responsibility orsupervision o quality o construction works and conormity o the building withthe designs. Authors supervision is accepted in many countries as an additional

means or the building owner to ensure the conormity o the building with thearchitectural project as well as compliance with inspections. However, the authorssupervision does not replace state supervision. In this type o supervision the partiesare: he building owner (person or entity owning the building), the buildingcompany (responsible or conducting construction works, however the buildingcompany may also be a building owner) and the author p the project. Te authorssupervision is benecial or the building owner in rst place, so that he/she can havea reliable means or ensuring the conormity and quality o the construction works

with the designs prepared by the author. On the other hand, having the results o theauthors supervision, the building owner will have ar less problems with conormityissues during the visits o the state architectural inspection.

27 I construction is planned in a zone o cultural heritage, the roong and nishing materials shouldbe indicated.


34/47


Currently state supervisors inspect activities that require a construction permitaccording to the Georgian legislation. In particular, the state architectural inspectionis responsible or the ollowing:

o control the compatibility o buildings under construction with the projectdocuments and normative documents, including technical regulations; ensureavailability o relevant documentation (project, normative, executive) and certicateso quality o construction materials.

o check that the order o construction related to organizational and legal issues,rom commencement o construction until completion, ollows the legislation. Inaddition, control the saety o the construction process.

During the course o inspection, an inspector can carry out additional laboratory testsand measurements in the case o grounded suspicions. I a violation is conrmed,the costs o the laboratory tests are covered by the project developer; i not, by thearchitectural inspection oce. It is important to highlight that the liability or anyviolations ound during and ater the construction process is not clearly dened in thecurrent legislation. It is understood that the permit holder is responsible or ensuringulllment o permit terms, and the permit issuer or observance o procedures andterms dened under the law. However, the issue o responsibility or each criminalcase is determined based on the claim/suit.

Due to the absence o unied and standardized inspections checklists, the itemsto be checked are dened by the respective inspecting authorities at dierent levels

(bilisi, major cities, autonomous republic and municipalities). his approachincreases the risk that some saety-related issues are neglected during inspections.Tis is especially possible in a situation when there is no unied piece o legislationthat would determine inspection procedures. Currently, these issues are governed bythree dierent normative acts: Resolution 62 on Construction Saety Rules (March28, 2007), Resolution 140 on Construction Permit (August 11, 2005) and the Lawon Supervision of Construction Activity.

Best international practices suggest that compliance with the requirements otechnical regulations is most eciently supervised by private inspectors, in line withthe technical inspection. Tese provide consultation and technical advice to privatecompanies over the course o the construction process. In countries that practiceprivate supervision over construction activities, the private inspector is oten not the

author o the project, but an inspecting engineer with no relationship to the projector plans. Te author i.e. the architect o the project keeps the intellectual propertyrights over the designs and other project-related materials. In case i the construction

works are conducted with deviations rom the project designs, the author may claimthat the building does not conorm with the project and will be entitled to disputehis/her intellectual property rights.

Based on the companies surveyed, the vast majority o respondents (97 percent) alsodeem that project supervision should be overseen by the project author. Teir reasonsare seen in Figure 13 below.


35/47


36/47


Respectively, the comparison o competitiveness o Georgian and Europeanspecialists can be illustrated as ollows:

Authority toPerorm Design andConstruction Activitiesin Georgia

Opportunity to PerormDesign and ConstructionActivities in Georgia in Caseo Foreign Investment

Opportunity to PerormDesigning and ConstructingActivities in European UnionCountries

gorn exprt P

europn exprt P P P

Although there is a need or proessional certication o local experts, it cannot beachieved at present due to the absence o national construction-technical regulations.

Without these regulations, the qualication o experts cannot be ascertained.

International regulations are recognized in lieu o Georgian technical regulationsaccording to Resolution 45 o February 24, 2006, on Recognition and Applicationby Georgia o echnical Regulations o Other Countries. Te resolution states thatthe mandatory saety requirements listed in documents rom the European Union,OECD member states, and Georgias main trade partners will be recognized asGeorgian technical regulations. But or these regulations to be used, they must betranslated into the Georgian language and registered with the respective authority.

Adapting the above-mentioned technical regulations is thereore a costly and

time-consuming process and is usually exercised by large companies carrying outinrastructure projects.

Te development o technical regulations is one o the priorities o the government.Currently, construction-technical regulations are being developed based oninternational construction-technical regulations (International Building Code). Beoredeciding on using IBC as a base set o standards or Georgia, the EuroCodes were alsoconsidered. However, ater analyzing various aspects o these Codes in terms o theiradvantages/disadvantages the preerence was given to IBC. Figure 14 below providesa comparison o the actors that contributed to decision by the government to adoptIBC.

Codes Issues and coverage Implementation

iBC 1. Comprhn

2. n-tun or 80 yr

3. U n 50 countr thr b co

1. L cotly

2. abunnt uctonl mtrl lbl

3. H n ct tnc prorm

euroCo 1. incomplt

2. U n eU countr

1. Mor cotly

2. do not h mlr rourclopmnt prorm

Figure 14. International Building Code vs. EuroCodes

Authorized governmental institutions have already purchased the IBC licensing

agreement, which provides the right to use IBC ocially in the process o developingthe Georgian construction-technical regulations with respect to local conditions.


37/47

35

Introduce a proessional regulation/certication system or specialists engaged inconstruction activities. Pending completion o national qualication examinations,it may be possible to license experts based upon (1) completion o an appropriatecourse o study in a recognized institution o higher learning, or (2) apprenticeship ornumber o years in practice.

Increased competitiveness o local construction specialists on domestic andinternational markets;

Increased quality o constructions.

3.6 Recent Update to Resolution 140

o streamline the process to issue a construction permit, urther amendments toResolution 140 were introduced in June 2008. Currently, the amendments have beenapproved by governmental agencies (Ministry o Culture and Sport and MonumentProtection, Ministry o Justice, bilisi Municipality), and have been reviewed atgovernment sessions pending the signature o the Prime Minister. Te changes mostlyconcern the stages o the construction permit issuance procedure and include theollowing:

Conrm

construction policy paper

Documents