"Natsionalnaya Ekonomicheskaya Gazeta" (National Economic Newspaper). №41 05.06.2007

"The object is commissioned! - The object is accepted!" - This is an example of a normal dialog between customers and contractors on building sites which in the sector of house-building is rather an exception than a rule. Terms, quantities, quality, payments - conflicts always arise around these issues during the acceptance of works and quite often are resolved only in court.

Is it possible to avoid disputes? How can one evaluate agreement provisions and actions of the parties? What are the conditions which allow customers to refuse to accept low-quality work? We asked Alexandr Stepanovski, an experienced commercial lawyer, director of the law firm "Stepanovski, Papakul and parters", Ltd. to answer these and other questions of readers of the newspaper "Ekonomicheskaya Gazeta" ("Economic newspaper").

ACCORDING TO THE LEGISLATION the customer is obliged not only to accept the results of the works but to pay for them to the contractor. Thus, the first and the most important advice to the customer - to take active part in the acceptance of the performed works and properly draw up and validate the results of the acceptance of work.

First of all it is necessary to find out what is the quality level of the works executed by the contractor according to the agreement. Indication in the acceptance act that the performed works do not comply with the agreement conditions could serve as a basis for a full or partial exemption of the customer from payment for them; because in accordance with the clause 1 of article 709 of Civil Code the contractor is liable toward the customer for the deviations from the quantities of construction and requirements stipulated in the construction documents and obligatory for the parties construction norms and rules. And according to clause 44 of the Policy on signing and execution of agreements (contracts) on construction approved by the Regulation of the Council of Ministers of 15.09.1998 #1450 (hereafter Policy #1450), construction works performed not in a quality manner shall not be paid until all the defects are eliminated and technologically related to them further works are performed.

So the customer will act wisely if in the acceptance act he/she lists all the imperfections of the construction works. I deliberately pay particular attention to this moment because there have been cases when economic courts recognized the customer's refusal to sing the act drawn up by the contractor as baseless because the discovered construction defects were not stated properly (in detail) in the refusal. Also it is obligatory to send the acceptance act to the contractor to sing.

At the same time the refusal of the contractor to sign the acceptance act does not have influence upon its legal force. The presence of the act signed by the customer certifies that the customer has fulfilled his/her obligations on the acceptance of works. And in case of court proceedings it is the contractor who will have to prove that the works have been performed in a quality manner.
Having studied general issues of acceptance let's review some particular ones.

STATUTORY ACTS in the construction sector set the liability of the parties under the construction contract to examine covered-up works. In particular clause 36 of the Policy #1450 stipulates this necessity. Moreover the Construction Norms and Regulations 3.01.01-85 "Organization of Construction Business" determine that the act on examination of the covered-up works is to be drawn upon the completion process executed by a separate subdivision of contractors. The acts on examination are accepted by the committee comprised of the contractor and the customer. Without these acts the execution of further works is prohibited.

The main problem appears when it has been discovered that the contractor did not attract the customer for the examination of the covered-up works and the corresponding acts were not drawn. In this case does the customer have the right to refuse to accept the results of the works? This depends on the circumstances of the acceptance process because according to the legislation there are no legal grounds for such a refusal. Also absence of the abovementioned acts does not necessarily mean that the covered-up works have not been executed by the contractor or that their quality falls short of the agreement.

Therefore if during the acceptance of the object it is revealed that the examination of the covered-up works has not been carried out in accordance with the approved procedures then the customer who under the law is obliged to make the acceptance of the results of the works has the right to request from the contractor other evidence of the fact that the covered-up works have been executed and their quality is appropriate. In this situation the matter concerns the construction works register in which the results of the operational control are recorded or the registers of incoming inspection of products and field supervision, flow sheets and other as-built documentation which the contractor is obliged to keep.

IN CASE the contractor does not present the documentation on the covered-up works the customer, in our opinion, has the right to refuse to accept them as well as technologically related to them works results. The ground for the refusal will be undue execution by the contractor of his obligations on the transfer of the works results. Apparently the contractor will bring a suit against the customer on recovery of the cost of works under the agreement. But for all that the contractor will of course have to prove the fact of execution of these works and of their proper quality. And probably an expertise will be assigned. If the court comes to the conclusion that the works are of the proper quality then the customer should be ready to pay for them. But on the hand a lawful refusal from the acceptance in all cases exempts the customer from the liability toward the contractor, including the liability for the usage of monetary funds of others.

Also one should take into consideration the provision of clause 5 of article 708 of the Civil Code: acceptance of works which under the legislation or the agreement due to their character need preliminary tests could be done only upon positive results of these preliminary tests. Otherwise the customer has the right to refuse to accept the results of the works.

Interim acceptance is necessary to prove the preparedness of the construction works and their conformity with the quality requirements. The list of the types of construction works which need interim acceptance is enclosed to the construction documentation. The procedures for interim acceptance conduction are set by the Rules of acceptance of the executed type (complex) of construction works approved by the Order of the Ministry of Construction and Architecture of 30.08.1999 #255.

THE RULES stipulate that after the customer has received a message with the date of preparedness to commissioning of a type, a stage or a complex of the construction works he/she is obliged to start the acceptance process within the time period agreed with the general contractor. The acceptance committee is formed by the order of the customer; it is comprised of the representatives of the customer (chairman), of the general contractor, contractor (sub-contractor) who executed the type of works being commissioned and the representative of the field supervision of the design organization. The order shall also contain the timeframe for the committee (start and end dates).

Depending on the results of the checks executed by the committee the following acts are drawn:

Acceptance act (of a set form) of the executed type, stage or complex of construction works - in case of positive results. In case some defects and imperfections have been detected which do not impede further works the committee can make a positive decision and enlist all the deviations in the act and the terms of their elimination.

If the works can not be accepted because the deviations from the project or normative-technical documentation have been detected - a list of defects and imperfections which are to be rectified is drawn; the list also contains the terms for the elimination.

After all the defects and imperfections have been rectified the general contractor draws up a certificate (of an optional form); then the customer can sign the acceptance act or can form a committee with this purpose again.

I would like to underline that even if the interim acceptance was not executed by the parties due to any reason the customer does not have the right to refuse from the works acceptance on the whole. Firstly because the absence of the interim acceptance act does not mean that the works have been executed not in a quality manner. Moreover such a refusal contradicts the very essence and the final goal of the construction agreement - transfer of the results of the executed works to the customer.