GILS Construction and Infrastructure: Mongolia
MONGOLIA
The relations between conducting construction work and developing its design are regulated by the following laws and regulations, including Law on Construction (2016), Law on Permits (2022), Law on Standardization, Technical Regulation and Accreditation of Conformity Assessment (2017) and other relevant laws and procedures approved by the perspective authorities.
1. What types of design and construction work require a licence in your country?
Under Article 18.1 of the Law on Construction, a pivotal legal document in the realm of construction, it is mandated that construction works must be carried out based on licenses and records.
According to the article 19.1 of Law on Construction, the development of designs for buildings and facilities, as well as the execution of construction work require special permits/licenses. These permits cover construction works under the categories of buildings and facilities of low, medium, high, and extreme complexity.
A qualified legal entity must apply for and obtain these special permits from the state central public administration body or the Ministry of Construction and Urban Development (MCUD). The license is issued for five years. In addition, manufacturing, installation, service, and maintenance of lifting mechanisms and their parts and manufacturing of load-bearing designs, structures, articles, materials, and their raw materials, flammable, toxic, and energy-saving products require special permits under Articles 19.1.3 and 19.1.4.
As per Article 26.1, the scope of construction work includes constructing new buildings, expanding, and demolishing existing buildings and facilities. If the main building and structure, or the size and capacity of utilities have been modified, the design must be re-developed and a new construction work permit must be obtained. In the case of multiple buildings and facilities to be constructed on a granted land, the construction work permit must be obtained for the highest level of complexity.
The procedures for issuing a permit for the construction of a state-owned oil refinery and a crude oil pipeline are regulated by the process outlined in Article 3.3 of the Law on Supporting Petroleum Refineries (2021).Under Article 27, the Government shall resolve the matters on issuing construction work permits and commission state-level buildings and facilities such as nuclear and thermal power plants, hydropower plants, railways, airports, subways, transnational oil and gas pipelines, oil refineries, and crude oil pipelines. The state central public administration body or MCUD shall issue permits for a building and facilities under the categories of extreme complexity and develop designs and perform construction work for more than 30-meter-high facilities such as towers, supporting or basic walls or buildings and facilities with more than 16 floors and those that supply water, heating, and power shall be issued only for the particular facility. The term of the special permit is valid until the completion of the construction work for such facilities.
Under Article 28.1 construction work permits shall be issued to qualified legal entities, and the permit shall be authorized by certificate.
The Law on Permits regulated the issuance, extension, and cancellation of construction works. The issuance of permits, setting of service fees, and other relevant relations are regulated by Order No.147 of the MCUD in specific.
There are 22 types of construction-related activities that require special permits and authorized bodies for granting them are outlined in the Article 8.1.3 of the Law on Permits.
2. Can legal entities registered in foreign countries obtain a licence for design or construction?
As per Article 45 of the Law on Construction, a foreign legal entity engaged in construction business shall obtain the license and register specified in this law.
A foreign-invested legal entity shall attach the certificate of construction license issued by the country's competent authority to its application for the license as specified in Articles 19 and 20 of this Law.
In practice, a foreign legal entity shall register a local subsidiary in order to obtain the permit for carrying out any construction related works. As permitted under the law, the foreign legal entity cannot apply for the permit without its local subsidiary.
3. Which foreign licences and permits in the field of construction and design can be recognized in your country?
Under Article 6.1 of the Law on Construction, the issues that are not regulated under building and facility regulatory documents of Mongolia may be regulated under the building and facility norms, regulations, and standards of international organizations and foreign countries.
In accordance with Article 1.3 of the Procedure for Registration and Application of Norms, Regulations, and Standards of International Organizations and Foreign Facilities in construction activities stipulates that these norms and standards can be used upon registration at the state administrative organization responsible for standardization and technical regulation. Government Decree No.107 dated 2019 outlines specific steps and requirements of this process.
To use the international norms and standards citizens, entities, and organizations shall apply a request to the MCUD under the mentioned procedure and be allowed to use the documents upon the registration/approval of MCUD.
4. Is it necessary to register a legal entity in your country to carry out design or construction work?
Please refer to answer 2.
5. What requirements are imposed on construction contracts and design and survey contracts, including when one of the parties is a non-resident of your country?
Under Article 28.1 of the Construction Law, construction work permits shall be issued to a legal entity. To ensure the right to obtain the permit, a non-resident contract party involved in construction-related activities shall establish and register its subsidiary in Mongolia.
In case a foreign company is a party to construction-related contracts, the company is required to conclude a contract with a licensed domestic company under the terms and conditions of the Work execution agreement in the Civil code. As described in the relevant part of the Civil Code, a Contractor may engage other legal entities or subcontractors for the execution of work stipulated in the contract. Unless otherwise provided by law or contract, the Contractor shall be liable to the Client for the subcontractor's work result.
In addition, under Article 14.3 of the Construction law, a building and facility occupancy improvement and adjustment period[1] shall be one year. The life of the exterior and interior decoration of the building and facility, all types of materials, primary structure, drinking and sewage water, steam, gas, heat, electricity, and communications equipment and fittings shall be no less than three years from the expiry of the occupancy improvement and adjustment period of a building and facility.
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[1] "A period of improvement and adjustment of building and facility for operation" means the time when the Client, contractors, designers, consultants, and other construction business entities are responsible for ensuring the smooth operation of building design, structure, materials, equipment, water and wastewater, steam, gas, heating, electricity, and communications after the building or facility has been commissioned and the certificate has been issued.
6. In what cases should construction contracts and design and survey contracts be concluded following a special procurement procedure?
The public procurement process shall be governed by the Law on Procurement of Goods, Works and Services with State and local Funds (hereinafter “the Procurement law” dated 2023) to procuring goods, works and services with state, local, and client[2] funds. If a project implementer executes a public infrastructure[3] or public service project within the public-private partnership framework, the Law on Public-Private Partnership (hereinafter “the PPP” dated 2022) and relevant procedures shall be followed.
The private sector partners shall be selected as per the prescribed PPP law and relevant procedures. Under Article 15 of the PPP Law, depending on characteristics of the project to be implemented through partnership, the partnership agreement shall have the following types as follows:
1. development, construction, use and transfer of designs and budgets;
2. construction, use, transfer;
3. construction, transfer, use;
4. build, lease, use, transfer;
5. construction, ownership, use, transfer;
6. rent and provide public services by renting;
7. implementation of operation and maintenance;
8. restoration, possession, use, transfer;
9. implementing management;
10. other types of partnership agreements determined by a complete analysis of the project.
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[2] "client” means state-and locally-owned legal entities; legal entities with 50 percent or more state and/or local ownership; Project implementer specified in sub-paragraph 4.1.21 of Law on Debt Management or means the authorized organization specified in international treaties, project documents, and/or other agreements concluded between the parties of the agreement, which is responsible for the implementation of projects financed by external loan capital and other parties specified in the Procurement law to be organized the procurement in accordance with this Law.
[3] Public infrastructure includes public buildings, highways, railways, cableways, above-ground and below-ground road structures, all types of engineering networks, simple designs, and structures for disaster prevention.
7. What are the features of hiring local and foreign personnel in the implementation of construction and design and survey activities?
The approved annex to Government decree No. 360, dated September 26, 2023, specifies the number and proportion of foreign employees to be employed in Mongolia in 2024. No limit was set for the number of foreign workers in the construction sector in 2024.
Adhering to the legal requirements for hiring local personnel in construction-related activities, as governed by the Labor Law (2021) and labor agreement, and the other similar agreements in the frame of the Civil Code (2002). The relations of foreign personnel in labor are regulated by the Law on the Legal Status of Foreign Nationals (2010) and the Law on Labor Force Migration (2021) and relevant procedures.
The process of hiring an employee from a foreign country involves submitting a hiring request to the state administrative body in charge of employment or the General Agency of Labor and Welfare. In order to hire a foreign employee, the employer must obtain:
(1) a permit to invite a foreign employee,
(2) a preliminary employment permit or invitation,
(3) a visa,
(4) a work permit, and
(5) a residence permit.
A visitor who tends to work in construction, roads, bridges, or other construction sectors shall apply for C1 type visas (above 91 days) as per the Procedure for Issuance of Visa in Mongolia. This type of visa shall not be issued electronically.
The visas shall be issued by the following authorities: a) Ministry of Foreign Affairs; b) Mongolia Immigration Agency; c) Mongolian Embassies and Consulates in foreign countries. The hired expatriate who is going to work at mine site (C3), construction field (C1), the expatriate employee shall obtain employment visa. Otherwise, other types of visa such as K1 or business visa are not allowed to work in Mongolia.
Prior to arrival, the hiring Company shall obtain an employment invitation for an expatriate employee. Based upon employment invitation, the hiring company shall obtain entry visa permission from Immigration authority. After the arrival of the hired expatriate in Mongolia, the employee must obtain a work permit in order to get a multi–C or employment visa (depending on the industrial sector, the “C” visa is sub-classified). Work permits for foreign employees must be obtained within 10 business days from the date of entering the Mongolian border. Prior to obtaining this permit, the foreign employee must undergo a medical examination and obtain a medical certificate.
Residence permission Foreigners coming to Mongolia for private purposes, such as work or investment should obtain a residence permit.
Under Article 32.1 of the LLFM, the Employer shall pay the payment for the workplaces of foreign employees, and unless otherwise provided by law, the payment shall be equal to an amount doubling the minimum monthly salary. The monthly amount is 1 million 320 thousand MNT or approximately 390 USD per workplace as of 2024.
The residence permit for a private purpose or work is granted for up to 1 year, with the possibility of extension for another 3 years.
8. Is it possible to use foreign standard construction contracts?
There is a notable flexibility in the use of foreign standard construction contracts in the field, as the construction-related contracts have not been specifically determined in the Civil Code. As per Section 343.5 of Article 343 of the Civil Code, "specific regulations for certain types of contracts for the performance of work may be regulated by special laws." This means that construction contracts can be concluded by the detailed regulations and requirements of other construction industry legislations, providing a level of freedom for contract parties.
The construction sector in Mongolia has witnessed a significant trend in recent years, with a growing number of construction projects concluding with FIDIC sample contracts. This shift in the industry's practices is worth noting, as it reflects the evolving landscape of the construction sector in the country. This type of contract has gained significant traction in large-scale construction projects in Mongolia. These standard agreements, used by multilateral development banks such as the World Bank, the European Investment Bank, and the Asian Development Bank, offer a comprehensive framework for project management and risk allocation. The most commonly used of these standard contracts is FIDIC's Silver Book, which provides a practical application of EPC (Turnkey Contract) contracts in the construction sector.
Contract parties in Mongolia have the freedom to conclude construction agreements within the framework of the Work execution agreement in accordance with Articles 341-358 of the Civil code. They also have the right to choose the main terms and conditions of contracts according to their preferences. This includes the option to incorporate provisions from the FIDIC standard contracts, which can be tailored to suit the specific needs and requirements of the project, ensuring the adaptability of these contracts to local conditions.
9. Is it possible to use foreign law and foreign courts when concluding construction contracts and design and survey contracts?
When signing the contract, the parties can mutually agree on the governing law applicable to one of the parties to the contract and whether to settle the dispute in that country's court or arbitration. In case the dispute shall be resettled by the court, the dispute settlement process shall be regulated under the civil proceeding law of Mongolia. Under the bilateral agreements between the Government of Mongolia and other countries on mutual assistance on civil, family and criminal cases, if the court decision issued by the court of one of the countries which has the bilateral treaty can be enforced in Mongolia.
In case the parties agreed to choose an international arbitration as dispute resettlement method, the arbitration award shall be enforced in Mongolia in accordance with New York 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Authors: Bolormaa Volodya (Partner), Buyanjargal Tungalag (Associate)
References:
Law on Construction
https://legalinfo.mn/mn/detail/11705
Law on Permission
https://legalinfo.mn/mn/detail?lawId=16530780109311
Law on standardization, technical regulation and accreditation of conformity assessment
https://legalinfo.mn/mn/detail/13071
Civil Code
https://legalinfo.mn/mn/detail/299
Law on the Legal Status of Foreign Nationals
https://legalinfo.mn/mn/detail/211
Law on Labor Force Migration
https://legalinfo.mn/mn/detail?lawId=16390388880621
Law on Procurement of Goods, Works and Services with State and Local Funds
ТӨРИЙН БОЛОН ОРОН НУТГИЙН ӨМЧИЙН ХӨРӨНГӨӨР БАРАА, АЖИЛ, ҮЙЛЧИЛГЭЭ ХУДАЛДАН АВАХ ТУХАЙ (legalinfo.mn)
Law on Public Private Partnership
ТӨР, ХУВИЙН ХЭВШЛИЙН ТҮНШЛЭЛИЙН ТУХАЙ (legalinfo.mn)
Relevant procedures
