Table of Contents
The construction industry in Nepal is regulated through a comprehensive legal framework designed to ensure quality standards, promote domestic construction entrepreneurs, and regulate public construction works. The Construction Business Act, 2055 (1999) and the Construction Business Rules, 2056 (2000) together form the principal legislation governing the licensing and operation of construction businesses undertaking public works in Nepal.
This guide provides a detailed analysis of these laws, including license requirements, contractor classifications, procurement rules, and compliance obligations.
Overview of Construction Business Act, 2055 (1999)
The Construction Business Act, 2055 (1999) was enacted by Parliament with the following objectives as stated in its preamble:
- Promote and develop construction entrepreneurs
- Regulate the operation of construction business
- Maintain required quality standards of public construction works
The Act came into force on 1st Baishakh 2056 (14 April 1999) and establishes the legal framework for licensing contractors, classifying construction entrepreneurs, and regulating public construction works in Nepal.
Key Definitions Under the Act
Section 2 of the Construction Business Act provides important definitions that form the foundation of the regulatory framework:
| Term | Definition |
|---|---|
| Public Construction Works | Any kinds of construction related works to be carried out by Government of Nepal and any body corporate fully owned by Government of Nepal, including reconstruction and maintenance works |
| Construction Entrepreneur | A firm or company registered under prevailing law with an object to carry out construction business |
| Foreign Construction Entrepreneur | A firm or company registered in a foreign country that carries out construction business related works |
| License | A license issued pursuant to Section 4 to carry out public construction works |
| Temporary License | A license issued pursuant to Section 6 to a foreign construction entrepreneur to carry out public construction works |
| Body Corporate | A body corporate fully owned by Government of Nepal |
| Technician | A technical employee deputed by Government of Nepal and the concerned body corporate to look after and supervise public construction works |
| Quality Standard | The quality standard mentioned in an agreement concluded between proponent and acceptor as per proposal invited for construction works, or in documents, drawings, designs and specifications forming integral part of such agreement |
Prohibition on Construction Without License
Section 3 of the Act establishes a fundamental requirement:
Important: No person shall carry out or cause to be carried out public construction works without having obtained a license pursuant to the Construction Business Act. This prohibition is the cornerstone of the regulatory framework.
However, this prohibition does not apply to public construction works carried out through:
- Consumers' committees pursuant to prevailing law
- Public participation pursuant to prevailing law
License Provisions
Application for License (Section 4)
A construction entrepreneur intending to carry out public construction works must:
- Make an application to the Implementation Committee in prescribed format
- Pay the prescribed fees
- Submit required documents demonstrating financial capacity and technical qualifications
License Issuance Process
The license issuance process under the Act and Rules involves the following steps:
| Step | Action | Timeline | Authority |
|---|---|---|---|
| 1 | Submit application with documents and fees | - | Implementation Committee |
| 2 | Committee inquires into financial capacity and technical qualifications | - | Implementation Committee |
| 3 | Committee makes recommendation for appropriate license class | Within 30 days of application | Implementation Committee |
| 4 | Government of Nepal issues the license | Within 15 days of recommendation | Government of Nepal |
Note: Government of Nepal may also issue Class "B" license without recommendation of the Committee (Section 4(4)).
Validity Period and Renewal (Section 5)
The license issued under Section 4 has the following validity and renewal provisions:
- Validity: One fiscal year (expires on last day of fiscal year regardless of issue date)
- Normal Renewal: Within 3 months of expiration date
- Late Renewal: Within 6 months of expiration of normal renewal period (with additional fees)
- Automatic Annulment: License not renewed within the extended time limit is automatically annulled
License Fees
The Construction Business Rules, 2056 prescribe the following fees:
| Class | License Fee | Renewal Fee | Late Renewal Fee | Duplicate Copy Fee |
|---|---|---|---|---|
| Class A | NPR 10,000 | NPR 7,000 | NPR 14,000 | NPR 1,000 |
| Class B | NPR 5,000 | NPR 3,000 | NPR 6,000 | NPR 1,000 |
| Class C | NPR 2,000 | NPR 1,500 | NPR 3,000 | NPR 500 |
| Class D | NPR 1,000 | NPR 1,000 | NPR 2,000 | NPR 500 |
Temporary License for Foreign Contractors
Section 6 provides for temporary licenses for foreign construction entrepreneurs under specific circumstances:
Eligibility for Temporary License
- Foreign construction entrepreneur selected in international competitive bidding
- Foreign construction entrepreneur involved in joint venture with native contractor in local competitive bidding exceeding NPR 60 million
Temporary License Fees
| Class | Temporary License Fee |
|---|---|
| Class A | Equivalent to USD 1,500 |
| Class B | Equivalent to USD 1,000 |
| Class C | Equivalent to USD 500 |
| Class D | Equivalent to USD 250 |
Restriction: A foreign construction entrepreneur with temporary license shall not carry out any public construction works other than the works mentioned in such license.
Annulment of License (Section 7)
Government of Nepal may, on recommendation of the Committee, annul the construction entrepreneur license in the following circumstances:
- License obtained on submission of false statements
- False statements and related documents submitted to Government or body corporate with intent to carry out public construction works
- Entrepreneur held to have failed to carry out works of standard quality
- License not renewed within the prescribed time limit (automatic annulment)
Before annulment, a reasonable opportunity must be given to the concerned construction entrepreneur to furnish explanation. Upon annulment, information shall be given to the office registering the firm or company.
Classification of Construction Entrepreneurs
Section 8 and the Rules classify construction entrepreneurs into four classes based on their qualifications:
| Class | Project Capacity | Minimum Working Capital |
|---|---|---|
| Class A | Works exceeding NPR 20 million (no upper limit) | NPR 10 million |
| Class B | Works from NPR 6 million to NPR 30 million | NPR 5 million |
| Class C | Works from NPR 2 million to NPR 10 million | NPR 1 million |
| Class D | Works not exceeding NPR 3 million | NPR 100,000 |
Detailed Qualification Requirements
Class A Construction Entrepreneur (Schedule 10)
| Requirement | Details |
|---|---|
| Financial Capacity | Registered as private/public limited company or partnership firm with minimum running capital of NPR 10 million |
| Work Experience |
|
| Human Resources |
|
| Mandatory Equipment | Theodolite (2), Level (4), Dump truck/truck (2), Water pump (3), Concrete mixer (3), Vibrator (5), Lab equipment (1 set), Backhoe/Excavator/Bulldozer (1) |
| Optional Equipment | At least 4 items from: Loader, Bitumen distributor, Water tanker, Motor grader, Rollers, Bitumen paver, Asphalt mix plant, Crane, Forklift, Crusher, Compactor, etc. |
Class B Construction Entrepreneur (Schedule 11)
| Requirement | Details |
|---|---|
| Financial Capacity | Minimum running capital of NPR 5 million |
| Work Experience |
|
| Human Resources | 1 Civil Engineer, 2 Civil Technicians, 2 Graduates, 2 Certificate holders, 1 Commerce Graduate |
| Mandatory Equipment | Theodolite (1), Level (2), Dump truck/truck (1), Water pump (2), Concrete mixer (2), Vibrator (4), Lab equipment (1 set), Backhoe/Excavator/Bulldozer (1) |
| Optional Equipment | At least 2 items from optional equipment list |
Class C Construction Entrepreneur (Schedule 12)
| Requirement | Details |
|---|---|
| Financial Capacity | Minimum running capital of NPR 1 million |
| Work Experience |
|
| Human Resources | 1 Civil Engineer, 2 Civil Technicians, 2 Graduates, 3 Certificate holders, 1 Commerce Graduate |
| Mandatory Equipment | Level (2), Water pump (2), Concrete mixer (1), Vibrator (3) |
| Optional Equipment | At least 1 item from optional equipment list |
Class D Construction Entrepreneur (Schedule 13)
| Requirement | Details |
|---|---|
| Financial Capacity | Minimum running capital of NPR 100,000 |
| Work Experience | Not required |
| Human Resources | 1 Civil Technician (certificate level), 1 Administrator (certificate level), 1 Commerce certificate holder |
| Mandatory Equipment | Level (1), Water pump (1), Vibrator (1) |
Equipment Compliance Requirements
The Rules prescribe specific requirements for machinery and equipment:
- Ownership certificate and insurance documents must be submitted
- Equipment must be certified by a mechanical engineer (graduate level, NEA member) as being in proper condition
- Equipment shall not be sold or disposed of for at least 2 years from registration date
- Equipment more than 15 years old shall not be recognized for new registration or standard enhancement
Obligations of Construction Entrepreneur
Section 9 and the Rules establish the following obligations:
- Carry out public construction works subject to terms and conditions in the contract agreement
- Submit details of each completed construction work to the Committee within 35 days of receiving completion certificate
- Pay 0.10% of accepted contract price to the Construction Entrepreneur Fund
- Maintain quality standards as specified in agreements
Public Construction Works Procurement Rules
Procurement Thresholds (Section 11)
Public construction works may be procured from construction entrepreneurs as follows:
| Class | Minimum Value | Maximum Value |
|---|---|---|
| Class A | NPR 20 million | No limit |
| Class B | NPR 6 million | NPR 30 million |
| Class C | NPR 2 million | NPR 10 million |
| Class D | - | NPR 3 million |
Preference for Native Construction Entrepreneurs (Section 12)
The Act provides significant preferences for Nepali construction entrepreneurs in international competitive bidding:
7.5% Price Preference
Works may be procured from a native entrepreneur even if their bid is up to 7.5% higher than a foreign contractor's bid, if:
- The entrepreneur is wholly owned by Nepali citizen, OR
- Joint venture with foreign contractor with at least 50% Nepali ownership
5% Price Preference
Works may be procured from a joint venture even if their bid is up to 5% higher than a foreign contractor's bid, if:
- Joint venture with foreign contractor with at least 25% Nepali ownership
Reserved Works
Key Provision: Public construction works valued at a maximum of NPR 60 million shall be procured exclusively from Nepali construction entrepreneurs.
Construction Business Development Council
Section 13 establishes the Construction Business Development Council with the following composition:
| Position | Role |
|---|---|
| Minister for Works and Transport | Chairperson |
| Member, National Planning Commission (Works and Transport sector) | Member |
| Secretary, Ministry of Works and Transport | Member |
| Secretary, Ministry of Water Resources | Member |
| Secretary, Ministry of Housing and Physical Planning | Member |
| Chairperson, Nepal Construction Entrepreneurs' Federation (or representative) | Member |
| Chairperson, Society of Consulting Architectural and Engineering Firm (SCAEF) | Member |
| Technical Joint Secretary, Ministry of Works and Transport | Member Secretary |
Functions of the Council (Section 14)
- Prepare norms required to maintain quality standards of public construction works
- Make and develop model drafts of agreements, terms of contract, and specifications
- Make and develop necessary codes including environmental aspects
- Operate trainings for human resource generation
- Conduct research and development on construction business matters
Implementation Committee
Section 15 establishes the Implementation Committee to assist Government of Nepal:
| Position | Role |
|---|---|
| Technical Joint Secretary, Ministry of Works and Transport | Chairperson |
| Technical representative, Ministry of Water Resources | Member |
| Technical representative, Ministry of Housing and Physical Planning | Member |
| Technical representative, Department of Roads | Member |
| Representative, Nepal Construction Entrepreneurs' Federation | Member |
| Representative, SCAEF | Member |
| Officer designated by Ministry of Works and Transport | Member Secretary |
Functions of the Committee (Section 16)
- Make recommendation to Government of Nepal to issue licenses
- Conduct study and research on construction business
- Hold inquiry into quality standard issues and verification by technicians
- Recommend action against persons involved in substandard work
- Determine policy matters for Nepali contractors bidding for foreign projects
- Prepare code of conduct for construction entrepreneurs
Construction Entrepreneur Fund
Section 17 establishes the Construction Entrepreneur Fund to enhance quality standards and efficiency:
Sources of Fund
- Amounts obtained from Government of Nepal
- Fees obtained from construction entrepreneurs (0.10% of contract price)
- Amounts obtained from native or foreign organizations
Operation and Audit
- Fund operated by counter-signature of Chairperson and Member Secretary of Committee
- Expenditures made as per decision of the Council
- Fund audited by registered auditor under prevailing law
Provisions for Foreign Contractors
Import of Equipment (Sections 19-20)
Foreign construction entrepreneurs importing equipment under facility for bilateral/multilateral projects must:
- Submit details of imported motor vehicles, machinery, tools, and equipment to the Committee
- Use imported equipment only for the specified works
- Obtain Government approval before using equipment for any other work
- Pay applicable taxes, fees, and charges if equipment is not taken back after project completion
Prevalence of International Agreements (Section 21)
Provisions of grant or loan agreements concluded between Government of Nepal and foreign governments, foreign government-owned organizations, or international organizations shall prevail for public construction works under such agreements.
Punishment Provisions
Section 22 provides for punishment of construction entrepreneurs who misuse facilities and concessions:
Penalty: Government of Nepal may impose a fine not exceeding double the amount misused on any native or foreign construction entrepreneur who misuses facilities and concessions available under prevailing law.
Building Act, 2055 (1998) - Related Provisions
The Building Act, 2055 works in conjunction with the Construction Business Act to regulate building construction. Key provisions include:
Classification of Buildings (Section 8)
| Category | Description |
|---|---|
| Category A | Modern buildings built based on international state-of-the-art standards, following building codes of developed countries |
| Category B | Buildings with plinth area more than 1,000 sq ft, more than 3 floors including ground floor, or structural span more than 4.5 meters |
| Category C | Buildings with plinth area up to 1,000 sq ft, up to 3 floors including ground floor, or structural span up to 4.5 meters |
| Category D | Small houses, sheds made of baked/unbaked brick, stone, clay, bamboo, grass, etc. |
Design Certification Requirements (Section 11)
- Category A: Design must be certified by the concerned designer
- Category B: Design must be certified by a civil engineer or architect
- Category C: Design must be certified by person with at least certificate level in civil engineering or architecture
Punishment Under Building Act (Section 14)
For buildings constructed without approved design or contrary to standards:
- Municipality or Urban Development Office may order immediate stoppage of construction
- May order demolition of building or any part thereof
- Fine up to NPR 50,000
- Order to withhold transfer of title, mortgage, and cut off utilities (water, electricity, telephone)
Appeal (Section 15)
A person not satisfied with a demolition order may appeal to the concerned Court of Appeal within 35 days of receiving the order.
Delegation of Authority
Rule 20 of the Construction Business Rules allows Government of Nepal to delegate powers to issue and annul Class D licenses to District Development Committees (now local governments) for a period of 5 years at a time.
Compliance Requirements Summary
| Requirement | Timeline/Details |
|---|---|
| License Renewal | Within 3 months of fiscal year end |
| Late Renewal (with additional fees) | Within 6 months after normal renewal period |
| Work Completion Report | Within 35 days of completion certificate |
| Fund Contribution | 0.10% of contract price |
| Equipment Retention | Minimum 2 years from registration |
| Equipment Age Limit | Not more than 15 years old |
Related Services
For assistance with construction business licensing and compliance:
- Construction Company Registration Nepal
- Company Registration in Nepal
- Industry Registration Nepal
- Foreign Investment and Technology Transfer Act Nepal
- Corporate Law Firm Nepal
- Contact Us
Disclaimer
This guide provides general information about the Construction Business Act, 2055 (1999) and Construction Business Rules, 2056 (2000). Laws and regulations may have been amended since this content was prepared. Please consult with legal professionals or relevant government authorities for the most current requirements and specific guidance for your situation.
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Frequently Asked Questions
The Construction Business Act, 2055 (1999) is the principal legislation governing the licensing and operation of construction businesses undertaking public construction works in Nepal. Enacted by Parliament and effective from 14 April 1999, the Act establishes the legal framework for licensing contractors, classifying construction entrepreneurs into four classes (A, B, C, D), regulating public works procurement, and establishing the Construction Business Development Council and Implementation Committee. The Act aims to promote construction entrepreneurs, maintain quality standards, and regulate public construction works systematically.
Section 3 of the Construction Business Act establishes a fundamental prohibition: no person shall carry out or cause to be carried out public construction works without having obtained a license pursuant to the Act. This is the cornerstone of the regulatory framework ensuring only licensed contractors undertake government construction projects. However, this prohibition does not apply to public construction works carried out through consumers' committees or public participation pursuant to prevailing law. Violation of this prohibition can result in penalties and legal consequences.
Section 8 classifies construction entrepreneurs into four classes based on their qualifications, financial capacity, work experience, human resources, and equipment. Class A can undertake works exceeding NPR 20 million (no upper limit) and requires NPR 10 million working capital. Class B handles works from NPR 6-30 million with NPR 5 million capital. Class C handles works from NPR 2-10 million with NPR 1 million capital. Class D handles works up to NPR 3 million with NPR 100,000 capital. Each class has specific requirements for technical staff and mandatory equipment.
The license issuance process involves four steps. First, the construction entrepreneur submits an application with prescribed documents and fees to the Implementation Committee. Second, the Committee inquires into the applicant's financial capacity and technical qualifications. Third, within 30 days of application, the Committee makes a recommendation to Government of Nepal for the appropriate license class. Fourth, Government of Nepal issues the license within 15 days of the recommendation. For Class B licenses, Government may issue directly without Committee recommendation.
Licenses issued under Section 4 are valid for one fiscal year and expire on the last day of the fiscal year regardless of issue date. Construction entrepreneurs must renew their license within 3 months of expiration by paying prescribed renewal fees. If they fail to renew within this period, they can still renew within 6 months by paying additional late renewal fees. A license not renewed within the extended time limit is automatically annulled. The renewal fees range from NPR 1,000 (Class D) to NPR 7,000 (Class A), with late fees being double.
Under Section 7, Government of Nepal may annul a construction license on Committee recommendation in the following circumstances: license obtained by submitting false statements, false statements submitted to Government or body corporate with intent to carry out public works, or the entrepreneur held to have failed to carry out works of standard quality. Before annulment, the entrepreneur must be given a reasonable opportunity to furnish explanation. Additionally, licenses not renewed within the prescribed time limit are automatically annulled. Upon annulment, information is given to the registering office.
Section 6 provides for temporary licenses issued to foreign construction entrepreneurs under specific circumstances. A temporary license may be issued to a foreign contractor selected in an international competitive bidding or involved in a joint venture with a native contractor in local competitive bidding exceeding NPR 60 million. The temporary license restricts the foreign contractor to only the specific works mentioned in the license. Temporary license fees range from USD 250 (Class D) to USD 1,500 (Class A) in Nepali rupees equivalent.
Section 12 provides significant preferences for Nepali entrepreneurs. A 7.5% price preference allows procurement from wholly Nepali-owned or 50%+ Nepali joint ventures even if their bid is up to 7.5% higher than foreign bids. A 5% price preference applies to joint ventures with at least 25% Nepali ownership. Additionally, public construction works valued at maximum NPR 60 million are reserved exclusively for Nepali construction entrepreneurs, effectively protecting the domestic construction industry from foreign competition for smaller projects.
Class A contractors must own mandatory equipment including 2 theodolites, 4 level instruments, 2 dump trucks or trucks, 3 water pumps, 3 concrete mixers, 5 vibrators, 1 complete lab equipment set, and any one of backhoe, excavator, or bulldozer. Additionally, at least 4 items from an optional list (loader, bitumen distributor, water tanker, motor grader, rollers, bitumen paver, asphalt mix plant, crane, forklift, crusher, compactor, etc.) are required. Equipment must be certified by a graduate mechanical engineer with NEA membership.
The Rules prescribe strict equipment compliance requirements. Ownership certificates and insurance documents must be submitted for all equipment. A mechanical engineer (graduate level, NEA member) must certify that equipment is in proper condition. Equipment shall not be sold or disposed of for at least 2 years from registration date. Equipment more than 15 years old is not recognized for new registration or standard enhancement purposes. These rules ensure contractors maintain operational equipment throughout their license validity.
Section 17 establishes the Construction Entrepreneur Fund to enhance quality standards and efficiency of construction entrepreneurs. The fund is sourced from Government of Nepal allocations, fees from construction entrepreneurs (0.10% of accepted contract price), and contributions from native or foreign organizations. The fund is operated by counter-signature of the Committee Chairperson and Member Secretary, with expenditures made as per Council decisions. The fund is audited by registered auditors under prevailing law.
The Council, chaired by the Minister for Works and Transport, performs key policy functions under Section 14: preparing norms for quality standards of public construction works, developing model agreement drafts and contract terms, making codes on environmental and other aspects, operating training programs for human resource generation, and conducting research and development on construction business matters. The Council provides strategic direction for the construction industry's development in Nepal.
Under Section 14 of the Building Act, 2055, if a building is constructed without approved design or contrary to building code standards, the Municipality or Urban Development Office may order immediate stoppage of construction. They may also order demolition of the building or any part thereof and impose a fine not exceeding NPR 50,000. Additionally, they may order withholding of property transfer or mortgage and cutting off of utilities (water, electricity, telephone). Appeals against demolition orders may be filed with the Court of Appeal within 35 days.
Sections 19-20 impose restrictions on foreign contractors importing equipment under bilateral/multilateral project facilities. They must submit details of imported motor vehicles, machinery, tools, and equipment to the Committee. Imported equipment can only be used for the specific works for which they are imported; using them for other works requires Government approval. If equipment is not taken back after project completion, applicable taxes, fees, and charges must be paid. These provisions prevent misuse of import facilities.
The Construction Business Act, 2055 regulates the licensing of contractors for public construction works, while the Building Act, 2055 regulates building construction standards, design approval, and building codes. They work together: the Construction Business Act ensures contractors are qualified and licensed, while the Building Act ensures buildings meet safety and quality standards. The Building Act classifies buildings into four categories (A, B, C, D) with different design certification requirements, while the Construction Business Act classifies contractors into four classes based on their capacity to undertake different project values.
