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build Dealing with Construction Permits

This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The most recent round of data collection was completed in June 2016. See the methodology for more information

Good Practices

- Ensuring that building quality control and safety mechanisms are in place
- Setting rules and ensuring that they are clear and coherent
- Using one-stop shops to improve coordination
- Differentiating projects by risk

Ensuring that building quality control and safety mechanisms are in place

Quality matters a great deal in the construction permitting system. The building quality control index assesses both quality control and safety mechanisms across 190 economies in six main areas: transparency and quality of building regulations; quality control before, during and after construction; liability and insurance regimes; and professional certifications.

Beyond causing confusion about how to proceed, construction regulations that are unclear and overly complicated can also increase opportunities for corruption. To measure the quality and transparency of building regulations, Doing Business looks at whether the regulations are available online, are available at the relevant permit-issuing agency free of charge, are distributed through an official gazette or must be purchased.

But simply making building regulations available is not enough if the requirements for obtaining a building permit are not clearly laid out in the regulations (or on a website or in a pamphlet). Applicants need to have a list of the documents and preapprovals required before applying, so as to avoid situations where the permit-issuing authority can arbitrarily impose additional requirements. And applicants need to be aware of the required fees and how they are calculated.
Beyond good regulations, an effective inspection system is also critical in protecting public safety. Without an inspection system in place, there is no mechanism to ensure that buildings comply with proper safety standards, increasing the chances of structural defects. And as a first step, having technical experts review the proposed plans before construction even begins can reduce the risk of structural failures later on.

And when defects are discovered during construction, it is more likely that they can be remedied easily. But defects are often discovered only after the building has been occupied. Remedying defects at that stage can be both costly and time-consuming. So it is important that the responsible party be held liable and that the parties involved in the building design, supervision and construction obtain insurance to cover the costs of any structural defects.

The professionals who conduct inspections ensure safety standards for buildings, so it is important that they be certified and have the necessary technical qualifications. Similarly, the individuals who review and approve building plans need to have a technical background in architecture or engineering to understand whether the plans conform to the necessary safety standards.

Setting rules and ensuring that they are clear and coherent

Efficient building regulation starts with establishing a coherent body of rules that defines what is required from builders. Today more than 140 economies around the world have a comprehensive set of building rules, in the form of either national building code or a law that most fully governs the construction process. Ensuring clarity in these rules is important. When regulations lack clarity and may be subject to broad interpretation, there is a risk that builders and authorities will become confused about how to proceed. This can lead to unnecessary delays, disputes and uncertainty. The adverse effects of ambiguous building regulations can become especially apparent in urban settings as more and more people move to cities and the need for construction of new buildings grows. Since 2007, 50% of the world’s population has been living in urban areas, generating more than 80% of global GDP (2). By 2050 the urban population share is expected to reach 70% (1).

One example of confusing regulation is the Solomon Islands. The country’s national building code has been in preliminary draft form since April 1989. The parliament has not yet enacted the code into law because of differences on how to proceed. In the absence of clear rules, building inspectors can potentially impose additional technical requirements on builders. The ability to engage in such practices can create conditions for some inspectors to extort unofficial payments.
On the other hand, there are economies where rules were adopted but never enforced. In Nepal for example, a National Building Code was adopted in 1994 but was never implemented nor abided by in practice. The result was that buildings were being erected without much concern for safety in a country subject to earthquakes. Two decades later, Nepal has implemented a system that automatically checks for compliance with the National Building Code. With the assistance of the United Nations Development Programme (UNDP), Nepal has automated its building permit system -- Electronic - Building Permit System (E-BPS).

Furthermore, having an approved building code does not guarantee uniform implementation. Local authorities may interpret the code differently. The Philippines has had a national building code since 1977, but rules vary substantially among cities. Taguig and Pasig are both part of the Metro Manila area, but their interpretation of which documents need to be notarized and which kinds of buildings need certain inspections is very different. As a result, according to a 2011 subnational Doing Business report, completing all construction permitting formalities takes 25 procedures and 85 days for an entrepreneur in Taguig but 36 procedures and 148 days for one in Pasig (3).

Besides being clear, building rules also need to be adaptable so that they can keep up with economic and technological change—particularly important in the light of growing environmental concerns. New Zealand chose an effective approach: performance-focused building codes set targets and overall technical standards but do not regulate how to achieve those standards. This allows room for innovation in building techniques.
Overly precise provisions make it challenging to keep regulation up to date. Some building codes specify what materials can be used in construction. This seems to make sense. The materials are tested for safety, and their technical parameters mandated in the code. But this approach works only when codes are regularly updated. And they rarely are in the transition economies of Eastern Europe and Central Asia, where such rules are most common.

Using one-stop shops to improve coordination

Building approvals tend to require technical oversight by multiple agencies, and one way to simplify this process is by establishing one-stop shops. But the success of one-stop shops depends on good coordination among all agencies involved and often requires overarching legislation that ensures information sharing and establishes oversight mechanisms to minimize cases of noncompliance.

Today around 36 economies around the world have some kind of one-stop shop for construction permitting. Since 2009, about 20 economies have successfully implemented one-stop shops for permit applications. In 2011 Taiwan, China established its first one-stop shop for construction permits and continues to improve its operations. By 2012 the number of procedures required to process permit applications had fallen from 25 to 10 and the time from 125 days to 94.

In other economies too, more efficient procedures allowed agencies to process greater volumes of permit approvals and increased client satisfaction. In 2006 Burkina Faso was among the 10 economies with the most complex requirements in the world. Not surprisingly, a survey that year found that more than 23% of local companies identified licenses and permits generally as a major constraint to doing business in the economy (4). To help address this concern, Burkina Faso opened a one-stop shop for construction permits, the Centre de Facilitation des Actes de Construire, in May 2008. A new regulation merged 32 procedures into 15, reduced the time required from 226 days to 122 and cut the cost by 40%.

Differentiating projects by risk

Not all building projects are associated with the same social, cultural, economic or environmental risks. The construction of a hospital or skyscraper cannot be compared with the construction of a 2-story commercial warehouse. Efficient governments have implemented rigorous yet differentiated construction permitting processes to treat buildings according to their risk level and location.

Simple or low-risk buildings require less documentation than more complex structures and can be approved faster. This saves time for both entrepreneurs and authorities and allows them to direct their efforts and resources more efficiently. Worldwide, the main criteria used to classify a construction project by its potential risk are based on the building’s use, location and size. Today several economies measured by Doing Business have a risk-differentiated approach and 14 have implemented risk-based inspections.

Ukraine provides a good example. In mid-2012 the government adopted a risk-based approval system, classifying construction projects into 5 categories based on their complexity, with categories 1–3 being simpler buildings. This has simplified the process and streamlined the procedures needed to obtain construction permits for less complex buildings like warehouses, which fall into category 3. For warehouses the requirement to obtain a construction permit was replaced with a requirement to provide notification that construction works had commenced.

In addition, the United Kingdom started modifying its building control system in 2007 to add a risk-based component. The goal was to develop a risk assessment tool for building inspectors and move from strict public enforcement toward a combination of public and private practices. In 2009 the Department for Communities and Local Government partnered with the private sector to develop a risk assessment tool. High-risk projects such as hotels and movie theaters would have at least as many inspections as low-risk projects at key stages of construction—and in most cases would require additional inspections to comply with safety regulations. The use of risk assessment has improved the inspection system. Since 2008 it has eliminated 8 procedures and 49 days from the process of obtaining a construction permit and connecting to utilities, as measured by Doing Business (5).

The Canadian city of Toronto revamped its construction permitting process in 2005 by introducing time limits for different stages of the process and presenting a unique basic list of requirements for each project. Later it provided for electronic information and risk-based approvals with fast-track procedures (“Commercial Xpress” for commercial buildings and “Residential Fast Track” for residential buildings).

The Republic of Korea introduced risk-based approvals in 2005/06. In May 2006 small construction projects were allowed to choose a fast-track option. This allowed regulators to focus their time and resources on more complex projects. The reform was timely because it coincided with higher demand for construction: between 2004 and 2009 the number of applications for commercial building permits in Seoul increased from 1,521 to 3,895 (6).

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1. McKinsey Global Institute. 2011. Urban World: Mapping the Economic Power of Cities. http://www.mckinsey.com/.
2. WHO (World Health Organization). 2010. Media notice on Global Forum on Urbanization and Health. http://www.who.int/mediacentre/.
3. World Bank 2010. Doing Business in the Philippines 2011. Washington, DC: World Bank Group.2010.
4. World Bank Enterprise Surveys (http://www.enterprisesurveys.org/).
5. Under the Doing Business methodology, if a private inspection firm is hired, only 1 procedure is recorded for the firm. Subsequent inspections are not recorded. Private inspection firms tend to operate more efficiently than government agencies that conduct inspections because government agencies usually conduct other tasks as well. Furthermore, there is generally less opportunity for rent seeking with private firms.
6. Information provided by the Seoul Metropolitan Government.