Problem

There are established corrupt practices in the fields of construction and project management in Ukraine. All specialists involved in the construction process (experts, architects, designers, technical supervision engineers, consulting engineers, authorized legal entities – controllers) should prevent both completely illegal construction and low-quality construction and abuse by the developer seeking to illegally increase the scale of construction. However, these very persons who are dependent on the developer often become part of the scheme, covering up certain violations, and drafting documents and issuing conclusions that are favorable for the developer, while violating the requirements of the law, building codes, and urban development documentation. This situation has arisen precisely because there is no effective mechanism for revoking the certificates of such persons. Despite high-profile scandals involving illegal construction, the implicated contractors are not held accountable, which allows them to continue their activities and commit violations.
For more than a decade, the problem of so-called defrauded investors has been one of the main issues in the construction sector, but no effective steps have been taken to address this problem directly over the years. All processes aimed at improving the legislation in the field of urban development involve making the process of obtaining permits in construction more transparent and public, prohibiting contacts with representatives of government agencies and local self-government bodies, etc. Attempts are also being made to create mechanisms for a transparent and safer procedure by which funds can be raised from individuals and legal entities as investments in construction (in particular, to prevent double sales and sales in a construction project without permits). However, the problems of defrauded investors do not end here. In particular, the law does not provide for proper financial control over financial intermediaries when buying a home. At the same time, there are unfortunate statistics on a large number of cases where construction financing fund managers cease to operate without fulfilling their obligations to investors, and there are no precedents where perpetrators have been prosecuted or the investors fully refunded. The issue of dishonest companies has not been resolved at all; it is quite easy to set up such a company, as well as to avoid liability for not finishing a construction project or not providing a refund. Individuals cannot be the factor that ensures proper control over the activities of managers; meanwhile, such control is nonexistent on the part of the state and the market. Also, the issue of exercising tighter control over the targeted and phased spending of funds, construction schedule slippage, or failure to meet the technical parameters of the construction project has not been resolved.
Significant corruption risks in the construction sector also lie in the failure to establish the mandatory verification of documentation submitted for obtaining permits, in particular, the mandatory verification of such documents prior to the issuance of a permit. In the absence of a direct obligation to verify the merits of documents, it is easy for an officer of the architectural and construction control and supervision authorities to overlook inconsistencies in documents and avoid liability for issuing a construction permit in violation of the requirements of the law, urban development documentation, and construction standards. However, in other cases this situation allows the officer to deny a permit due to non-compliance of the documents with the requirements of the law, urban development documentation, construction standards and to expect unjust enrichment for subsequent issuance of the permit. Given the time required to conduct an inspection (if ordered) and for the judicial examination, most unlawful permits remain unrevoked until the facility is put into operation. Post-permit inspections also carry a corruption component, as inspections are not ordered for every facility. This selectivity creates conditions for undue pressure on developers by threatening them with an inspection and its possible consequences, or helps unscrupulous developers by allowing them to give bribes and avoid an inspection (or have applications requesting an inspection to be recognized as unfounded) and keep the permit in force until the facility is put into operation.
In addition, this situation is not favor the stability of relations in the construction sector, as the construction project may already be built at the stage of revocation of the permit in court, so it is the investor, not the developer, who will be punished. The absence of a direct obligation to verify the merits of documents before issuing a permit and the absence of a mandatory follow-up inspection is a corruption component inherent in the legislation that creates opportunities for improper actions and opportunities for obtaining unjust enrichment.
Procedures for architectural and construction control and supervision contain a significant amount of discretionary powers, which is recognized by experts in this area as one of the biggest problems. The fact that an official has the right, but not the obligation, to act in a certain way (amending urban development conditions and restrictions, suspending/revoking the right to perform pre-construction and construction work, etc.) provides a legal landscape for abuse and artificial obstacles for the developer seeking to obtain documents. The use of "may" in the law gives the authority a choice of conduct: to exercise its right to suspend/revoke the permit in specific cases or not. Such an important issue for the developer as the ability to perform (continue) construction work, the resolution of which depends essentially only on the will of the official, creates an overly fertile turf for corruption. At the same time, there is no liability for failure to perform certain actions, because without a clearly established obligation, a person cannot be held liable (no obligation means no violation).
Another important aspect of state architectural and construction control is the market oversight of construction materials and products used in construction.
In order to reform and harmonize the legislative and regulatory framework of Ukraine with the European one, the Law of Ukraine On the Placement of Construction Products on the Market was adopted on September 2, 2020, which implements Regulation (EU) No. 305/2011 into national legislation and also provides for other essential amendments to the laws of Ukraine. This Law came into force on January 1, 2023. It is worth noting that the quality of these legislative amendments depends on how fully the entities covered by said Law master the terms, processes, and procedures of the new rules. Therefore, only practical application of laws will show how market supervision will work, since now it is up to market supervision to improve the safety of buildings and structures and the competitiveness of national producers in general.
A pressing issue in the construction sector is connection to utility networks. At present, there is no publicly available information on the availability of electricity, water, gas and sewerage networks, as well as their characteristics (length, capacity, reserve capacity, etc.). This information is not systematized in general. This allows network owners (monopolists) to provide technical conditions to developers for connecting construction projects at their own discretion. Information on the availability or absence of connections is available exclusively to the owner of the relevant networks and cannot be controlled. Similarly, although the connection fee is calculated on a formulaic basis, it is impossible to verify the accuracy of the initial data used for the calculation, which allows the monopolist to set the price at its own discretion. In addition, the hardcopy format of submission and processing of the documents for connection to networks, the need to submit separate applications for each type of network to connect one construction project complicates the interaction between network operators and consumers, leads to unnecessary contacts between applicants and officials and gives rise to attendant corruption risks. Insufficient transparency and certainty of such procedures puts an additional financial burden on customers and gives rise to corrupt practices, while the lack of reliable information on the actual state of the networks (available capacity) may lead to unreasonable requirements for the customer connection in the technical specifications for non-standard connection, which is not actually necessary.
There is a significant corruption risk in the allocation of funds from the State Fund for Regional Development. This is due to the completely non-transparent procedure for selecting and monitoring investment programs and projects implemented at the expense of the State Fund for Regional Development, the non-public application process, the non-public process of reviewing and selecting applications, the absence of committee specialists and experts who can properly evaluate projects and programs in the vast majority of cases, and the lack of a system for monitoring the implementation of regional development programs and projects. However, one of the biggest problems in this area is the politicization of the process, as at least 50 percent of the committee’s members are Parliament members, which calls into question the objectivity of the outcome of such selection. Given the non-public nature of the entire process and the chaotic timing of applications, the selection of projects and programs turns into a competition between committee members depending on their level of influence and political weight, rather than a professional selection of projects and programs based on their feasibility and potential.