In Romania, contracts for the design or carrying out of building works are regulated by a special set of laws, in addition to the general rules contained in the Romanian Civil Code.
The most important pieces of legislation governing construction contracts are:
Last modified 3 Apr 2023
By law, construction works may be undertaken only after a building permit is issued by the relevant authority. In order to receive a building permit the following is required:
In addition, in order to start work, site organisation authorisation must be obtained. Generally, the application for this authorization is filed together with the application for the issue of the building permit and is obtained together with the relevant building permit, but it may also be obtained after the building permit is issued.
Where demolition is necessary in order to start construction works, a demolition permit is required. It will be released subject to the same conditions as the building permit.
In addition, an express approval authenticated by a notary public must be obtained from neighbouring owners (or from the homeowners' association) for any change in the designated use of existing buildings, or for the construction of buildings with a designated use which differs from that of the neighbouring buildings. These approvals must be attached to the technical documentation filed with the application for the issue of a building permit.
Building permits are not required for certain works such as interior decoration, exterior decoration if the façade elements or the colour are not changed, repairs to fencing, roofs or terraces, if the form or the materials are not changed etc. However, in the case of historical monuments, including constructions located within the protected built areas or within the protection area of historical monuments, the conditions are more restrictive, and a building permit might be requested in respect of which, for ordinary construction works such building permit is not required.
Furthermore, in certain cases, specific urban planning documents are not required for the issue of a building permit.
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In Romania, the general framework regarding health and safety on construction sites is governed by Law No. 319/2006 regarding health and safety at work and Government Decision no. 300/2006 regarding minimum health and safety standards for temporary or mobile sites, implementing Directive 89/391/EEC (the “Decision”).
The aim of the Decision is to protect construction workers by establishing various procedures, regulations and responsibilities in order to ensure construction quality. The Decision imposes an obligation on the project manager to assign a coordinator and to prepare a health and safety plan.
In addition, there are several pieces of legislation that provide for specific rules and regulations in specific areas (eg asbestos or noise).
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Making preliminary contact with the competent environmental authority is a mandatory prerequisite for the issue of a building permit. At that stage, the authority will make an initial assessment of the investment in order to establish if an environmental impact study is necessary.
If an environmental study is necessary, it will need to be prepared by the client/employer in accordance with environmental regulations.
An environmental approval document is an essential part of the documentation that must be filed to obtain a building permit and the requirements imposed by the environmental approval must be fulfilled. The competent authority issuing the building permit will refuse any building permit application which does not have a full set of supporting documents, including the environmental authority's authorization.
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Agreements with Romanian public authorities may be entered into in relation to infrastructure under the applicable legislation regarding public procurement, provision of services and concessions.
Agreements with the utility suppliers must be concluded during the construction work as well as after the work is complete.
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Law 10/1995 regarding quality in construction works provides the main framework of requirements that must be fulfilled by client/employers, designers and contractors. In addition, there are several additional detailed technical regulations that apply.
Certain standards must be met throughout the entire existence of the construction relating to:
Technical expertise must be provided by authorized experts for any works of rebuilding, consolidation, transformation or partial demolition.
When the construction works are finished, the parties sign handover minutes in order to certify that the contractor has fulfilled its obligations in accordance with the construction contract and the relevant legislation. The handover involves two phases:
In certain cases, the handover upon completion of the works shall take place only together with the handover at the completion of connection works to the public services and technical infrastructure, corresponding to the ensembles of individual and collective housing units, the constructions of public utility and the access routes. Furthermore, the handing over of the construction to the owner shall take place only after the admission of the reception upon completion of works and after putting into service the authorized and final connections to the public utilities networks of the urban infrastructure, both in case of new investments and interventions on existing constructions that were not used during the execution of the construction works. Failure to comply with this, if considered an administrative offence, is sanctioned with a fine ranging from RON 1,000 to RON 100,000 (approx. EUR 200 to EUR 20,000).
Under the relevant legislation, the designer and the contractor participate in both phases of the handover, so provisions obliging the designer and the contractor to participate in the handover should be included in the design agreement, respectively in the construction contract in order to avoid any additional fee becoming payable.
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In Romania there are no standard contracts provided by the law which must be used in the construction and engineering sectors, however, international forms are often used. FIDIC contracts are the most frequently used:
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The parties to such a contract are:
This is the beneficiary of the construction works, usually the owner of the land or an investor. The employer gives the contractor the right of access to, and possession of, all parts of the site. The employer (where he is in a position to do so) provides reasonable assistance to the contractor at the request of the contractor in order to obtain all the necessary authorizations and permits.
This is the person empowered by the client to perform the construction works at his own risk. The contractor designs (to the extent specified in the contract), executes and completes the works in accordance with the contract, and remedies any defects in the works. The contractor is responsible for the adequacy, stability and safety of all site operations and of all methods of construction used.
This is the person appointed by the employer to supervise the construction works. Subject to the specific conditions of the construction contract, the engineer is generally required to obtain the approval of the employer before exercising any specific authority. The engineer may from time to time assign duties and delegate authority to assistants, and may also revoke that assignment or delegation.
This is the person authorized by the State Inspectorate for Construction as required by the law to perform various activities such as: verifying the quality of the construction materials, the proper performance of the construction works and the fulfilments of all the requirements imposed by the law.
Usually the lender, namely, the institution providing financial support for the project, will not be a party to the construction contract.
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In accordance with the general principles of the Romanian law, the risk of destruction or loss of assets is borne by the owner of the relevant assets. Therefore, if the materials necessary for the construction works have been procured by the contractor, he will bear the risk. However, if the materials have been procured by the employer and the construction has been affected by defects in the materials, the employer will bear the risk.
In addition, under the Romanian Civil Code, the contractor bears all the risks arising from a construction contract, as he undertook the obligations of the contract at his own risk. Thus, if the performance of the contract becomes impossible due to force majeure or for any other reason apart from the employer’s default, the contractor is not entitled to receive the construction price, as he has not carried out the works.
However, the employer is obliged to pay the price of the construction works if he was in default in handing over the site of the works. Also the contractor is entitled to ask for payment of the price if the construction works are not carried out due to defects in materials provided by the client. The constructor benefits from a legal mortgage for the payment of the price, which produces effects only after registered in the relevant land books.
These provisions may be waived by the parties to a construction agreement and the client/employer’s liability may be extended.
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Public-private partnership (PPP) refers to forms of cooperation between public authorities and the world of business which aim to ensure the funding, construction, renovation, management or maintenance of infrastructure or the provision of services. Public authorities, at all levels, are increasingly interested in co-operating with private investors, in order to benefit from the know-how of the private sector and to overcome public budget constraints. The legal regime of PPPs was previously set out by Law no. 233/2016, which was repealed on 18 May 2018. On 18 May 2018, a new emergency ordinance regulating public-private partnerships has entered into force, ie GEO no. 39/2018. PPPs are generally encouraged by the Government although no landmark contracts were concluded yet. As the PPP is a rather new option for investment, the authorities have a certain level of reluctance in using this structure.
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As a matter of practice, the parties to a construction agreement usually establish a contract price that is subject to adjustments calculated as a consequence of variations such as:
In addition, the construction contract may provide that the contract price may be adjusted in order to take into account any increase or decrease in costs resulting from a change in the country's laws or in the judicial or official governmental interpretation of such laws, which affect the contractor in the performance of its obligations under the contract.
The relevant legislation does not prohibit the parties from entering into a construction contract where the price to be paid to the contractor is fixed.
In addition, under the legislation governing public procurement, in public procurement contracts, the price may be adjusted only in specific situations and subject to conditions expressly provided for by the law.
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Under Romanian Law, no insurance is compulsory but market practice is expanding the extent to which insurance is taken out.
Insurance is necessary for the contractor because it is responsible for the construction works until handover. The works will be covered against risks such as: fire, flood, damage caused to third parties and business interruption. Moreover, construction contracts usually contain a clause by which the contractor is obliged to take out an all risks insurance policy.
The client/employer usually insures itself against the risk of the works not being delivered at the time stipulated in the contract.
In addition, after the handover of the construction works, under Law no. 260/2008 on the mandatory insurance of homes against earthquakes, landslides and floods, all natural or legal persons must insure their property.
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In order to protect against the possibility of not receiving the construction works at the completion date, the client/employer may negotiate some additional security in the contract.
First, it may ask for bonds and guarantees. If the contractor breaches the contract, the performance bond will usually entitle the employer to a payment of an amount up to about 10 percent of the contract price. The guarantee of the contractor's obligations is generally given by a holding company but these guarantees often contain some type of limitation clause or financial cap. In addition, a bank guarantee may be provided by the contractor.
Secondly, a guarantee may also be requested from subcontractors or professional consultants.
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Normally, in a construction contract, the price is pre agreed, taking into consideration an estimate of the costs. The employer makes an advance payment, as an interest-free loan to facilitate mobilization and the contractor submits a guarantee. The rest of the price will then be paid in instalments.
The total advance payment, the schedule of payments, and the applicable currencies and proportions, are stated in the construction contract.
A construction contract may only lay down the criteria for the subsequent determination of the price. In this situation, the works are measured and valued for payment by the engineer.
Furthermore, generally, a performance guarantee of 10 percent of the price is withheld. The performance guarantee is usually returned to the contractor in the following tranches:
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A construction contract always includes the date for completion of the works, even if it is determined by reference to a future event.
Any delay in handing over the works involves penalties being paid by the contractor. Usually, the amount of these penalties is pre-defined by the parties in the construction agreement and represents a reasonable pre-estimate of the employer's loss in the event of delay.
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Normally variations to the specification for engineering or construction works may be requested by the engineer at any time prior to the issue of the completion minutes.
Such variations may include:
Where the engineer requests a variation the contractor must respond in writing as soon as practicable, either giving reasons why he cannot comply (if this is the case) or by submitting:
The engineer shall, as soon as practicable, approve, disapprove or make comments on the contractor’s response. Normally, each instruction to execute a variation, with any requirement for adjusting costs, is issued by the engineer to the contractor who then approves it.
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Under Romanian Construction Law no. 50/1991 and the national rules concerning the handover of construction works and associated installations, all the construction works which have been authorized by a building permit, are to be completed in accordance with the building permit by the time the handover minutes are signed. By this point, all necessary works for normal occupancy should have been completed.
The handover of the works is effected by a handover commission named by the client/employer and composed of representatives of the client/employer, of the local authorities and of experts. The structure of the reception commission has been extended, by including the following additional members:
In any event, the designer of the project must present its opinion on the construction works to the commission.
The reception commission examines the following:
In addition, a copy of the energy performance certificate for the building obtained by the client/employer must be attached to the documentation filed in respect of the handover. As of 19 July 2013, all handover minutes for works issued without a copy of the energy performance certificate attached are invalid.
The handover commission may request expert reports, other documents, samples and other tests.
On completion of the handover inspection, the reception commission will present to the client/employer the handover protocol with its observations and recommendations. If the client/employer consents to a handover subject to minor items still requiring to be completed, the contractor must remedy the defects within a period of time agreed with the client/employer. However the handover will not occur if there are minor works outstanding and the client/employer does not consent to the handover.
The handover procedure is compulsory for all authorized building works and non-compliance with this obligation means the works will not be treated as completed. As a sanction, the development will not be registered with the Cadastre and Real Estate Publicity Office. The failure to perform the reception upon the completion of the construction works in accordance with the applicable regulations is deemed an administrative offense and is sanctioned with a fine of RON 2,000 (approx. EUR 414).
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Hidden defects in the construction are guaranteed by the contractor for 10 years and defects affecting the structural core of the construction are guaranteed for the entire “life” of the building. These statutory guarantee periods start from the completion of the project, as evidenced by the handover minutes. As the duration of the guarantees is laid down for reasons of public interest, contractual provisions which reduce the legal period of guarantee are deemed null and void.
The contractor’s liability for evident defects is triggered only (i) if expressly agreed by the parties in the contract or (ii) if the handover minutes were obtained by fraud.
Romanian legislation expressly provides for a limitation period within which legal proceedings must be commenced against the contractor in relation to defects or deficiencies in the construction. The limitation period is three years and starts on the date of discovery of the defects, which cannot be any later than the expiry of the guarantee period.
These guarantees only benefit the parties involved in the construction agreement (eg the contractor, designer, suppliers of materials and construction products, construction supervisors or certified technical experts) and cover only the obligations which are expressly regulated by Law 10/1995 regarding construction quality.
For any other obligations arising from the construction agreement, the limitation period for starting legal proceedings against the contractor is three years starting on the date the relevant obligation becomes due.
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The client/employer is liable to purchasers of a building or any part of it in respect of any defects only in the following circumstances:
The parties may agree to increase, reduce or even exclude the liabilities of the seller for the hidden defects. However, any contractual clause regarding the limitation or exclusion of the purchaser’s right to claim will not be valid if, when the sale and purchase agreement was concluded, the seller was aware of the hidden defects but the purchaser was not.
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Under Romanian legislation, designers and architects are liable for damage caused to the employer or its successors (eg purchasers of the building or of parts of the building) only to the extent the damage is caused by an error in the design or specification. The Architects' Code of Practice defines the extent of architects’ responsibilities for their designs. Any client intervention in the areas which are within the scope of the architect's responsibilities may exonerate the architect of his liability.
Designers, contractors and suppliers of materials, construction supervisors, and certified technical experts are responsible for any hidden defects in the construction arising within 10 years from the handover of the works. After the expiry of that period, they are still liable throughout the entire lifetime of the building for defects in the structural core which arise from negligent design and execution.
No exclusion of this liability is allowed under Romanian Law, but it is possible to extend a contractor or subcontractor's liability.
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Responsibility for the development and remediation of any defects in construction works throughout their entire existence lies with the original designers and contractors.
Under Romanian legislation, original designers and contractors are not contractually liable to third parties such as tenants and lending banks, but they are liable to purchasers.
In addition, even if the designers and the contractors are not contractually liable, they may be liable under general legislation or under the rules of civil liability.
Furthermore, the employer may be held liable under agreements which it has concluded with third parties. In such situations, the employer may go back to the designer or contractor in order to recover its loss.
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Depending on the amount at stake, the competent courts to deal with construction disputes are either the Courts of First Instance or the Tribunals.
Administrative disputes are resolved by the special sections of the contentious administrative courts, while commercial cases fall under the commercial sections of the Romanian Courts. Under Romanian Legislation the court's decision can be appealed at a higher level subject to the limitation period established by law.
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As the FIDIC agreements (which recommend arbitration proceedings) are commonly used and because of the reduced time and costs involved, parties usually include arbitration clauses in construction agreements. Arbitrators in disputes should be independent and impartial and cannot be representatives of the parties. Arbitrators must maintain full confidentiality regarding the facts in their knowledge, even after the proceedings are finished.
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The most common forms of ADR are: mediation, conciliation and determination by an expert. There is not a great deal of information available in the market regarding the use of ADR in construction disputes.
Mediation is a non-binding form of dispute resolution that works well for minor disputes. The mediator engages in shuttle diplomacy to formulate a solution that is acceptable to both sides. It has one major disadvantage. If the mediator fails to find common ground, the dispute moves back to the litigation track. As a result, it works well for minor disputes. It does not work very well with difficult disputes or unreasonable parties.
Conciliation is another dispute resolution process that involves building a positive relationship between the parties of dispute. The “conciliator” is an impartial person that assists the parties by driving their negotiations and directing them towards a satisfactory agreement. Conciliation is a much less adversarial proceeding seeking to identify an obligation that has been breached and searching to find the optimal solution.
Determination by an expert is a procedure in which a dispute or a difference between the parties is submitted, by agreement of the parties, to one expert who make a determination on the matter referred to it. The determination is not binding, unless the parties agree otherwise. It is a consensual and confidential procedure.
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Is it common for construction disputes to be referred to arbitration? If so, how does arbitration compare with litigation through the national/federal courts?
As the FIDIC agreements (which recommend arbitration proceedings) are commonly used and because of the reduced time and costs involved, parties usually include arbitration clauses in construction agreements. Arbitrators in disputes should be independent and impartial and cannot be representatives of the parties. Arbitrators must maintain full confidentiality regarding the facts in their knowledge, even after the proceedings are finished.
Last modified 3 Apr 2023