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Risks and Key Points for Preventing Project Subcontracting: With the continuous development of the market economy, project subcontracting has become a common practice in the process of construction, and this gives rise to various risks associated with project subcontracting. 1 Premises for the emergence of risks in project subcontracting First, the risks associated with project subcontracting are described in the following seven points: (1) The illegality of the subcontractor’s qualifications poses a risk to the main contractor. (2) Risk of illegal content and form of the subcontract. (3) The risk of subcontracting and further subdivision after fragmentation, or of the subcontractor subcontracting again. (4) The risk of relying on others or allowing them to borrow the company’s business license and qualification certificates to undertake projects. (5) The risk of irregular subcontract formation with missing essential clauses. (6) The risk of substituting packaging for management. (7) Risks associated with the owner’s instructions to subcontractors. 2 Reasons for the Risks Associated with Project Subcontracting The reasons for these seven risks related to project subcontracting are as follows: (1) The general contractor fails to properly assess the qualifications of the subcontracting parties. (2) The loss of control over subcontract management poses risks to construction quality and safety. (3) The project contract’s schedule, quality, and safety are subject to the subcontractor, posing significant legal risks for the general contractor. (4) It is difficult to carry out the subcontract smoothly, with the main contractor and the subcontractor blaming each other, which affects the proper execution of the main contract. (5) Subcontractors undertake projects through relationships with the owner, and are not under the unified management of the project management department. 3 Methods for Addressing Risks Associated with Project Subcontracting In light of the five main causes of risks in project subcontracting, and after a thorough understanding of the current situation in construction projects, it is necessary to eliminate such risks at an early stage by giving top priority to subcontract contract management. This approach aims to make contract management more standardized and regulated, thereby minimizing risks in project management during the contract phase. The following outlines the key provisions in subcontract contracts and the corresponding measures for risk prevention, for reference by peers in the industry. Before signing a contract for subcontracting in engineering construction projects, it is necessary to conduct a thorough evaluation of the subcontractor’s business license, qualification certificates, work safety permits, qualification level, financial condition, similar past projects, and project management capabilities, in accordance with the bidding procedures and based on both preliminary and detailed evaluation criteria. Only those subcontractors that meet the required standards are included in the list of subcontractors for the engineering construction project. Secondly, the qualified subcontractors have won the bids for the construction projects; the next step is to conclude the subcontracting agreements in accordance with the requirements specified in the tender documents and the bid submissions submitted by the contractors. No negotiations may take place regarding substantive terms such as the bid price, safety and quality standards, or the contract deadline, and the substantive content and terms must not be altered. In this regard, I would like to provide the following explanations regarding the key clauses in the subcontract that may give rise to subcontracting risks: (1) Subject of the contract: 1) Project overview: This involves many aspects, and it is necessary for the party drafting the contract to fill in the information accurately and carefully. 2) Scope of project subcontracting: The scope of project subcontracting refers to the range of work and contents that the subcontractor is responsible for carrying out. The scope of project subcontracting is an essential clause in the construction contract. The division of the scope of subcontracting work should take into account the overall situation of the entire project. Following the principles of rationality and efficiency, and after review by the relevant functional departments, it must be described in detail in the contract documents, with precise specifications, so as to avoid any confusion or ambiguity that could hinder the smooth progress of the project and lead to disputes and shifting of responsibilities, thereby affecting the project’s advancement. To this end, it is crucial to take preventive measures from the outset, make accurate distinctions, and provide detailed descriptions. (2) Contract price: The contract amount accepted by the employer “refers to the amount accepted by the employer in the award letter for the execution, completion, and rectification of defects in the works, which is derived from the subcontractor’s bid price and confirmed by the employer.” The contract price refers to the total amount of payment that the subcontractor is entitled to receive for all work that meets the requirements, upon completion of the construction and warranty tasks as stipulated in the various terms of the contract. Subcontracts generally adopt two methods: lump-sum pricing and unit price-based pricing. If a lump-sum subcontracting contract is adopted, it is necessary to clearly define the scope of the lump sum. For a subcontract under a lump-sum unit price contract, it is essential to specify the details and the lump-sum unit prices. It is advisable to include in the subcontract a schedule of quantities along with an analysis of the pricing, so as to avoid disputes during subsequent settlement. (3) Contract duration: The subcontract usually specifies in detail: 1) Commencement date ； 2) Completion date. In the event of special circumstances where the project timeline is uncertain, it should be specified that the start date shall be determined in accordance with the start-order issued by the owner, or the latest version of the construction schedule should be used to clarify this matter; failure to include such information or omitting it is not acceptable. (4) Management of payment for project progress: 1) Management of advance payments: An advance payment is a sum paid in advance from future project payments by the employer to help the subcontractor address funding shortages during the initial stages of construction. The project contract should specify whether an advance payment is included. If so, the amount of the advance payment, the manner of payment (the number of installments and the timing), as well as the conditions for its repayment must all be outlined in the special provisions. Additionally, it is required that the subcontractor provide a guarantee bond for the same amount, which serves as a safeguard to ensure that the contractor fulfills its obligations diligently. 2) Retention money: It is an amount that, in accordance with the terms specified in the main contract signed between the owner and the client, is deducted from the payment due to the subcontractor for the work completed, and remains with the owner as one of the measures to ensure that the subcontractor fulfills its contractual obligations strictly. When the subcontractor commits a general breach of contract that causes losses to the owner, damages can be deducted directly from this amount. For example, if the subcontractor fails to repair the defective parts within the time frame specified by the engineer, and the employer hires someone else to carry out the repairs, the cost associated with this can be deducted from the retention money. 3) The contract uses performance bonds and retainers as measures to ensure that the subcontractor fulfills its contractual obligations diligently. When the subcontractor commits serious breaches that prevent the contract from being carried out smoothly, the employer can obtain compensation from the bank via the performance bond. In cases where the subcontractor’s ordinary breaches cause losses to the employer, retainers are often used to cover such losses. The agreed period for both the performance bond and the retention money is the period during which the subcontractor is obligated to carry out the construction work (including the construction period and the defect notification period). 4) Procedure for payment of project progress payments: a: Measurement of the work volume. The quantities listed in the bill of quantities are merely estimates of the work to be carried out, and cannot serve as a basis for settling payments to the subcontractor for fulfilling the construction obligations stipulated in the contract. Before making each payment for the monthly progress of the project, it is necessary to verify the actual amount of work completed through measurement, using these measured values as the basis for payment. For construction work under a unit price contract, the quantity measured should serve as the basis for paying progress payments. In the case of a total price contract or a mixed unit price and fixed price contract, the portion covered by the total price contract can be paid based on the quantities specified in the drawings, with only the changes being measured. To this end, special attention must be paid to the change management provisions, and the relevant terms specified in the contract must be strictly implemented. b: Subcontractor to provide reports: Strictly adhere to the deadline for submitting reports and the format specified in the contract, and submit requests for payments due for the work completed this month along with confirmations of any corresponding deductions. c: Owner’s approval: The employer will submit the reports provided by the subcontractor to the engineer, who will then verify the progress of the work carried out by the subcontractor, as well as the quantity and quality of the work and the calculation of various costs. If there are any doubts, the subcontractor can be requested to jointly review the quantity of work. After verification confirms accuracy, a payment certificate is issued. 5) Employer’s payment for project progress: The employer will make payments in a timely manner, in strict accordance with the terms of the contract regarding deadlines, payment methods, payment certificates, and monthly progress payment applications. This ensures a solid financial foundation for the smooth progress of the project, helps to maintain stability within the subcontractor’s construction team, and prevents any adverse effects on the project’s timeline due to delayed payments of workers’ salaries. During the construction of a project, if special circumstances arise on site, appropriate adjustments should be made according to the actual situation. Under normal circumstances, the amount paid for project progress payments is 80% of the amount approved for that month. (5) Contract modification: A project modification refers to situations that arise during construction where the conditions are different from those anticipated at the time of contract signing, thereby requiring changes to certain tasks within the originally agreed scope of work. Construction projects are greatly affected by external factors such as natural conditions; their complexity is high, and owners issue tenders at the bidding stage based on preliminary design drawings. Therefore, changes are inevitably incurred during the performance of the construction contract. The valuation of engineering changes shall be carried out at the price agreed upon through consultation between the employer and the client. If specific provisions for implementation are included in the main contract signed by the client and the employer, then the employer and the subcontractor must strictly abide by the terms of that main contract. (6) Project quality: It shall be strictly implemented in accordance with the relevant provisions specified in the main contract signed with the owner; the inspection procedures and standards shall be consistent with those outlined in the main contract, with particular emphasis placed on the inspection of concealed works in construction. Quality standards are a core element of the contract agreement. The quality of a project is typically determined by design drawings, construction instructions, and construction technical standards. The engineering quality clauses specify the construction requirements for the subcontractor and serve as the basis for defining the subcontractor’s responsibilities; in the event of any unexpected situations on site, specific measures and re-inspections are to be carried out as appropriate. (7) Scope of material supply: In the subcontract, it is essential to clearly distinguish between materials provided by Party A and those provided by Party B. If written descriptions are not sufficient to convey the intended meaning, a table can be used to clarify things, thereby avoiding disputes and blame-shifting during construction due to unclear distinctions or inadequate descriptions, which could hinder the normal progress of work. (8) Rights and obligations of the employer and subcontractors: General responsibilities of the employer: Responsible for providing water sources and power connection points for construction, as well as completing the preparations prior to the start of construction at the site. Organize the review of work instructions, construction plans, as well as quality and safety supervision. Provide the subcontractor with drawings and technical documents for equipment installation, and be responsible for the comprehensive review of construction drawings as well as the delivery of design details. Review the construction organization plan, safety construction technical measures or plans prepared by the subcontractor, as well as the monthly project progress reports, and pay the subcontractor the contractually agreed amounts for the work done. Responsible for overseeing project quality, progress, and safety. Provide in a timely manner the materials to be supplied by the employer as stipulated in the contract. Conduct the completion acceptance for tissue engineering and handle the final settlement. Responsible for the management of the entire construction site, coordinating the cooperation among subcontractors as well as those working on other parts of the same site, and ensuring that subcontractors carry out their work in accordance with the approved construction plan. General responsibilities of the subcontractor: The subcontractor shall notify the employer 7 days in advance if changing the on-site representative, and the successor shall continue to assume the responsibilities of the predecessor (the obligations stipulated in the contract documents and the commitments within the scope of their authority). Unconditionally accept all the employer’s management rules and regulations as well as safety management measures. Collaborate with the employer to meet the work requirements and facilitate communication with the owner during the construction process. It is necessary to ensure timely payment of migrant workers’ wages; the subcontract should include a clear commitment to pay these wages in full and on time. The employer must bring the subcontractor under the management of its own organization. (9) In addition to the provisions that must be specified, the subcontract shall also include penalty clauses regarding the situation where the subcontractor fails to complete the construction tasks on time and to the required quality in accordance with the terms of the contract, as well as failing to meet the standard specifications set out in the contract; it shall also specify the provisions applicable in other circumstances. (10) Final settlement: In this clause as well, the master contract signed between the employer and the owner shall prevail. The settlement procedures must be clearly specified in the subcontract. The engineering department strictly controls the verification of the volume of work as well as the standards for quality inspection, while the finance department carefully reviews progress reports and handles the calculation and payment of project payments. (11) Supplementary clauses: To improve the subcontract and enhance its enforcement, it is advisable to include supplementary clauses such as a commitment letter ensuring the timely and full payment of migrant workers’ wages, as well as a warranty letter for the quality of the contracted work. In principle, it should be in line with the terms of the main contract signed between the contract issuer and the owner. 4 Conclusion As long as the above provisions are carefully implemented, the contract terms are improved and effectively enforced, the risks associated with project subcontracting will certainly be **reduced, ensuring that the project progresses in a positive direction from start to finish.