​The Revised Construction Law of Mongolia: the changes and its implications

On the 5th of February 2016 the Parliament of Mongolia enacted the revised “Construction Law” (“Revised Law”) which was published in the 9th edition of the “State Gazette” publication on the 4th of March 2016. The Revised Law came into force on the day of its enactment and thus replaces the previous Construction Law (“2008 Law”) which was enacted on the 5th of February 2008. Compared to the 2008 Law, the Revised law is more extensive and detailed; comprising of 9 chapters and 26 articles as opposed to the previous 7 chapters and 26 articles. We have produced a compilation of various important provisions which elaborate further on or change issues addressed in the 2008 Law as well as some completely new additions. They are:

  • Clarification of the rights and duties of participants in the construction process

The Revised Law introduces not only a clarification of the rights and duties of individuals and organizations engaged in the construction process, but also adds to the duties that existed previously.

  • Possibility of the usage of international technical procedures and standards

On issues that have not already been governed or addressed by Mongolian Law and Mongolian Construction norms and normative, it is now acceptable to follow norms and standards set by foreign or international organizations. This provision is contained in Article 6 of the Revised Law, and the process by which the relevant foreign or international norms and standards will be registered, approved and used will be determined by the Government of Mongolia.

  • Constructions are categorized by its complexity/difficulty

According to Article 10 of the Revised Law, constructions will now be categorized depending on the complexity or difficulty of the works being carried out. This form of categorization was not present in the 2008 Law. The categories are:

  • Construction which does not require a building permit
  • Low complexity/difficulty construction
  • Medium complexity/difficulty construction
  • High complexity/difficulty construction
  • Special complexity/difficulty construction
  • The decision waiting time of application for a special license has decreased

The process by which a special license can be obtained has now been simplified with fewer steps and the outcome of the application is guaranteed to be decided in 10 working days as opposed to the previous average of around 40 days.

  • Certificates issued before a construction facility begins operations

Under the Revised Law, before a construction facility can begin its operations a certificate must be obtained which will contain a classification depending on its quality and safety standards. The classification ranges from ‘Green’ for facilities that meet all requirements to “Red” for those which do not.

  • Increased role of non-governmental, specialized organizations

As stipulated in Article 18.4 of the Revised Law, non-governmental, specialized organizations are now able to issue a special license for constructions of low complexity/difficulty to special complexity/difficulty as well as register legal entities in the construction sector. Previously, this role was limited to governmental organizations only.

  • New rules regarding insurance

Article 8 covers insurance in relation to the construction sector and states that those engaged in construction works can take out risk insurance. Employees working on a construction facility must also be covered by life insurance and for specialist engineers, specialist architects, quantity surveyors, engineer consultants and head quantity surveyors it is now mandatory to take out professional indemnity insurance.

  • 1-year duration for correction and adjustment

The 2008 Law provided for a 3-year quality guarantee for constructions but Article 14.3 of the Revised Law provides specifically for a 1-year period after receipt of the certificate to begin operations (mentioned above) in which all adjustment works must be completed including its structural works, facilities, equipment, water supply, sewage system, gas, air, heating system, electricity and communication links. Once the period of 1 year is over, there is a further period of not less than 3 years in which the aforementioned requirements must remain in an acceptable and utilizable condition. Breaches occurring in this period must be rectified by the liable party; either the client, construction drawing designer, contractor, supplier of building materials or the proprietor.

  • Clarification of activities exclusive to the main contractor

According to the Civil Code and the Revised Law, the main contractor has the right to hire a subcontractor on the basis of the initial construction agreement. However, Article 40.1.9 of the Revised Law states that works which involve the foundation, walls, siding, stairs, structural frame and roof works must be completed independently by the main contractor and not by a subcontractor.

  • Clarification of specific regulations applicable to foreign individuals and entities

The Revised Law addresses the legal issues of a foreign individual or entity in relation to engaging in the construction sector which the 2008 Law did not. An individual of a foreign nationality must have obtained the permissions necessary to carry out his/her profession according to the relevant procedures and regulations. A foreign legal entity is required to have obtained a special license (as is the case for Mongolian entities also), under Articles 19 and 20 of the Revised Law. Further, unless stated otherwise by Mongolian laws, a foreign entity carrying out construction works financed by the state or local budget or through foreign loans will need to contract with a Mongolian entity in order to do so. As stipulated in Article 23.5 of the Revised Law, “The authorized foreign legal entity must produce and confirm its construction drawings with an authorized Mongolian entity and the drawing documents must be in English and Mongolian.”

  • Clarification of the requirement of construction consulting services

Construction consulting services were covered under the 2008 Law but did not provide for any detailed or specific requirements. The Revised Law clarifies the purposes and aims of construction consulting services and also introduces a requirement of consultation for constructions of ‘high’ and ‘special’ complexity/difficulty (as discussed above). The Revised Law clearly identifies and sets out around 10 types of consultation services which are applicable.

  • Introduction of the ‘Protection Procedure’

According to Article 41 of the Revised Law, where construction works have been stopped for a period of 7 months of more, the client must start the ‘Protection Procedure’ whereby the organizations authorized to implement state construction controls must be notified, who will then decide on the next steps to take. This Procedure can last for up to 2 years although it is possible to request to extend this in certain circumstances.

  • Clarification on the requirements in relation to the disabled

Article 15 of the Revised Law sets out clearly the requirements in relation to the needs of the disabled. Under this Article, the construction drawings must meet the needs of disabled individuals and the specific requirements will be determined by construction regulations, procedures and norms.

  • Increase in consequences for breach of duty

The 2008 Law set out an exact sum of money for an administrative breach of duty which was also comparably low. Now, the Revised Law sets out a different method of calculation using the monthly minimum wage which is currently 192,000MNT (but will increase to 240,000MNT from 1st of January 2017) if a violator of the Revised Law is not subject to a criminal liability. An individual in breach of this law could be fined 10-25 times the minimum wage, an organization 25-50 times and an official could be fined 10 times the monthly minimum wage.

If you have further queries, do not hesitate to contact us.

SOLONGO.B, Partner (solongo@gtsadvocates.mn, tel+976 331020)

KHULAN.B, Paralegal (khulan@gtsadvocates.mn, tel+976 331020)

gtsadvocates: 11 8 2016