Chinese Construction Contracts

Civil Code Book III: Construction Contracts

Construction contracts (jianshe gongcheng hetong, 建设工程合同) are governed by Articles 788 to 808 of Book III of the Civil Code of the People’s Republic of China, which carried forward the provisions of the 1999 Contract Law with modifications. A construction contract is defined as a contract between the project owner (fajian ren) and the contractor (chengbao ren) for the completion of a construction project, which the contractor undertakes to complete and deliver and the project owner undertakes to pay for.

The Civil Code distinguishes three sub-types of construction contracts: survey contracts (kantan hetong), design contracts (sheji hetong), and construction contracts (shigong hetong). Each sub-type is subject to the general provisions of construction contract law in addition to the specific characteristics of the relevant professional service.

Minimum Bid Price

Chinese law requires that construction projects subject to mandatory tender — those involving public interest, state investment, or foreign investment — be awarded at a price not lower than the minimum bid price (zhaotoubao dijia). Article 33 of the Tendering and Bidding Law prohibits tenders from bidding below cost. The Regulations on the Implementation of the Tendering and Bidding Law (2011, revised 2019) further require tender evaluation committees to reject bids that are “manifestly below cost” and to require the bidder to provide written justification.

The minimum bid price rule aims to prevent quality-cutting by contractors who underbid and then reduce construction standards to maintain profitability. The rule has been criticised for creating legal uncertainty — the cost floor is not objectively defined, and tendering authorities may reject competitive bids by classifying them as “below cost” without transparent criteria. The Supreme People’s Court’s judicial interpretations on construction contract disputes have addressed the calculation of “cost” for tender purposes, defining it as the enterprise’s individual cost rather than the industry average cost.

Project Contractor System

The project contractor system (gongcheng zongchengbao zhidu) establishes the legal structure for construction project delivery. The general contractor (zongchengbao ren) assumes overall responsibility for project completion and may subcontract portions of the work to subcontractors (fenchengbao ren). The general contractor remains responsible to the project owner for the entire project, and the subcontractor is jointly and severally liable to the general contractor for its portion.

Civil Code Article 791 codifies the prohibition on subcontracting the entire project (zhuanbao), which occurs when the general contractor subcontracts the whole project or withdraws from the project while leaving the subcontractor to perform the work. The prohibition extends to subcontracting to unqualified entities and to subcontracting by a subcontractor (multi-level subcontracting). Contracts that violate these prohibitions are void, and the contractor and subcontractor bear joint and several liability for project defects.

Subcontractor Liability

Subcontractor liability in Chinese law operates on two levels. The subcontractor is liable to the general contractor under the subcontract agreement. The subcontractor also bears joint and several liability with the general contractor to the project owner for the quality of the subcontracted work. Civil Code Article 791(3) provides that the general contractor and the subcontractor assume joint and several liability for the subcontracted work to the project owner.

The Supreme People’s Court’s Interpretation on Construction Contract Disputes (I) (2004) and Interpretation (II) (2018) clarified the liability of subcontractors for personal injury. Where a worker employed by a subcontractor is injured on the project site, the project owner, general contractor, and subcontractor may all bear liability depending on their respective fault. The project owner is liable if it failed to exercise reasonable supervision in selecting the general contractor; the general contractor is liable if it failed to supervise the subcontractor’s safety compliance.

Construction Quality

Construction quality obligations are governed by Civil Code Articles 795-803, supplemented by the Construction Law (Jianzhu Fa) and the Regulations on the Quality Management of Construction Projects (Jianshe Gongcheng Zhiliang Guanli Tiaoli). The contractor warrants that the completed project conforms to the contract specifications and applicable quality standards, and bears liability for defects discovered within the warranty period.

Civil Code Article 801 imposes liability on the contractor for project defects — the contractor must remedy defects within a reasonable time, and if the contractor fails to do so, the project owner may remedy the defects at the contractor’s expense. The contractor’s warranty liability extends to structural defects for the design working life of the building (typically 50 years for ordinary buildings). The Supreme People’s Court’s interpretations clarify that the contractor’s liability for structural defects is strict: the project owner need not prove the contractor’s fault, only that the structural defect exists and was caused by the contractor’s work.

Payment Disputes

Payment disputes are the most common category of construction litigation in China. The project owner’s obligation to pay the contract price is conditional on the contractor’s delivery of conforming work. However, Chinese courts have increasingly protected the contractor’s right to payment where the project has been completed and accepted, even if formalities are incomplete.

The Supreme People’s Court’s Interpretation on Construction Contract Disputes (II) established the construction price priority right (jianshe gongcheng jiakuai youxian shouchang quan), giving the contractor’s claim for payment priority over the project owner’s other creditors, including mortgage holders. The priority right must be exercised within 18 months (previously 6 months) of the project completion date.

Huang He v Jiangsu Construction Group Cases

The Huang He v Jiangsu Construction Group series of cases, adjudicated by multiple courts between 2015 and 2021, addressed the relationship between actual constructors (shiji shigong ren) and nominal contractors in payment disputes. Huang He, as an actual constructor operating without a formal construction qualification, had entered into a de facto subcontracting arrangement with Jiangsu Construction Group. When payment was not received from the project owner, Huang He sued Jiangsu Construction Group for payment and also asserted a direct claim against the project owner.

The courts held that an actual constructor may assert a direct claim for payment against the project owner where the nominal contractor has failed to pay, provided the actual constructor can prove that the project owner knew of the actual constructor’s involvement and accepted the work. The case established the principle that Chinese courts will look beyond the formal contractual chain to ensure that actual constructors are not deprived of payment by nominal contractor insolvency or bad faith.

Conclusion

Chinese construction contract law is comprehensive and contractor-protective in significant respects, particularly through the construction price priority right and the actual constructor direct claim. The minimum bid price rule, the prohibition on full project subcontracting, and the joint and several liability regime balance the protection of the project owner’s quality interests with the contractor’s payment rights.