The Social Fund (Romanian Law no. 215 / 1997 on the establishment and operation of the social fund for building contractors [casa socială a constructorilor]) came into force in 1997. However, almost 20 years later, several important questions over payment obligations still remain unsolved, leading to uncertainties for investors.
Investors receive notifications from the Social Fund for alleged outstanding payments – sometimes several months after the completion of construction projects. In light of the incomplete legislation, most investors are not sure how to handle such reminders.
The Social Fund as a protective mechanism for construction workers
The Social Fund was founded as a non-profit organisation to provide financial protection for workers in the highly weather-dependent and economically sensitive construction industry. The law provides the creation of a fund that is financed through contributions by the construction workers and economic operators, and by payments “amounting to 0.5% of the estimated costs for the construction works” (devizul de construcţii).
During temporary interruptions in their professional activity, especially during winter, the members of the Social Fund receive support from the fund through benefits set at 75% of the past three months’ average gross income.
Is there an obligation on investors to pay?
The law does not clearly stipulate an obligation, and given the nature and purpose of the Social Fund, it is unclear whether investors are indeed compelled to pay into the Fund. There is also inconsistency in the legislation, which makes investors uncertain of their obligations. The sole legal provision (an amendment to law no. 50/1991 on the authorisation of construction works) clarifying payments to the Social Fund – a silver lining in the legal disarray – was repealed a few months after publication. This led legal experts as well as state institutions (eg. the Romanian Court of Auditors) to the conclusion that the law on the Social Fund had been implicitly revoked.
On the other hand, subsequent legal provisions still mention the Social Fund. The laws on the thermal rehabilitation of residential buildings and on increasing construction quality expressly refer to contributions to the Social Fund; Social Fund contributions have even become part of the current official template for the general cost estimate of construction works. These legal provisions may be seen as examples of the legislation’s intention to maintain the obligation to pay into the Social Fund.
Who is obliged to pay?
Assuming the obligation is still in force, the next question must be: Who is liable to pay the statutory contribution?
A glance at the corresponding law provides no answer: neither investors nor contractors are mentioned in connection with the payment obligations. Since investors are not the group directly targeted by the law, the scope of which is focused on the protection of employees, one could conclude that the contribution has to be paid by their employer, namely the contractor.
However, back in 1999, several ministries published so-called “specifications” which insisted that the contribution (0.5% of estimated project costs) must be paid by all investors in the construction industry.
In fact, such “specifications” can neither extend nor change legal provisions. A clarification of such importance can only be achieved through primary legislation – a point of view shared by numerous legal experts.
Such legislation has not yet been adopted. As the law lacks both an express payment obligation and any legal sanction for failure to pay, many investors in recent years have decided not to pay the contribution. So far, the Social Fund itself has not initiated any legal measures.
The vague and (from an investor’s point of view) uncertain legal provisions concerning the contributions for the Social Fund have been in force for approximately 20 years, creating a negative aspect to the construction industry which can deter investors. Despite that, it pursues a legitimate aim, i.e. the financial protection of employees. Against the background of extremely inflexible conditions determined by labour laws on working time, construction workers would otherwise be defenceless.
While the legislators’ intention that the 0.5% contribution must be paid is unambiguous, the issue of who must pay remains unresolved. Within the business environment, there are calls for a reduction of the contribution and a clear statement about building contractors taking on the obligation, as it is their employees who require protection.
Summarising, there is urgent need for clarification and regulation over law no. 215/1997 concerning the establishment and operation of the social fund for building contractors, for the benefit of everyone involved in the construction industry.