【Civil Code Construction Contract】Is there no illegal subcontracting?

Interpretation 1: Replace “illegal subcontracting” with “subcontracting”. The Construction Law explicitly prohibits contracting entities from assigning all the construction projects they have been entrusted with to others, and it also prohibits them from breaking down such projects and then subcontracting or assigning them to others under the guise of subcontracts. The Regulations on Quality Management of Construction Projects provide a clear legal definition of \"subcontracting\". The so-called subcontracting refers to the practice where, after undertaking a construction project, a contracting party fails to fulfill the responsibilities and obligations stipulated in the contract; it then transfers the entire project it has undertaken to another party, or divides the project into parts and assigns each part to different parties for construction under the guise of subcontracting. At the same time, in cases where the general contractor subcontracts the project it has been entrusted with, in addition to ordering corrections and confiscating the illegal gains, the regulations also provide for a fine on the construction contractor ranging from 0.5% to 1% of the contract price for the project ； An order to suspend operations for rectification can be issued, as well as a reduction in the qualification level ； In cases of serious violations, the qualification certificate shall be revoked outright. The \"Regulations on the Management of Qualifications for Construction Enterprises\" (formerly Order No. 159 of the Ministry of Construction) contain provisions regarding subcontracting: if a construction enterprise applies to upgrade its qualification level or obtain a qualification other than its main qualification, and it has engaged in subcontracting of the projects it has contracted within one year prior to the application date, the construction administration authority will not approve such application. Meanwhile, Article 7 of the \"Measures for the Identification, Investigation, and Handling of Illegal Acts in the Assignment and Contracting of Construction Projects\" stipulates that, as used in these measures, subcontracting refers to the act whereby a contracting unit, after undertaking a project, fails to fulfill the responsibilities and obligations stipulated in the contract, and instead assigns the entire project it has contracted, or divides it into parts and assigns each part to other units or individuals for construction under the guise of subcontracting. As can be seen from the relevant provisions above, subcontracting is itself an illegal act, one that is explicitly prohibited in China’s construction industry; therefore, the Civil Code changes \"illegal subcontracting\" to simply \"subcontracting\".

2 Circumstances under which the employer and contractor may terminate the contract. This provision is new to the Civil Code; it incorporates the contents of Articles 8 and 9 of the Judicial Interpretation I on Construction Contracts, but it also omits certain elements from that interpretation. Specifically, the Civil Code excludes from Article 806 the circumstance whereby the contractor may request termination due to non-payment of the contract price as agreed. It also excludes from Article 806 the circumstances under which the employer may request termination, namely “clearly indicating or demonstrating through actions a failure to fulfill the main obligations under the contract,” “failing to complete the work within the deadline specified in the contract despite reasonable reminders from the employer,” and “the completed construction work being of substandard quality and the contractor refusing to make repairs.” However, Article 563 of the Civil Code already stipulates the legal circumstances under which a contract can be terminated. In the context of construction contracts, as long as the employer fails to pay the contract price as agreed and fails to do so after being reminded, the contract can be terminated, regardless of whether the contractor is able to carry out the work. Here, in fact, the protection of the contractor’s legitimate interests has been strengthened, while the legal liability of the employer in case of breach of contract has been increased. Therefore, Article 563 of the Civil Code stipulates the circumstances under which a contract can be terminated by law, and both the contracting party and the contractor may invoke this provision to terminate the construction contract.

Article 563 of the Civil Code: Under any of the following circumstances, a party may terminate the contract: (1) The purpose of the contract cannot be achieved due to force majeure； (II) Before the expiration of the performance period, one of the parties clearly states or indicates by its actions that it will not perform its principal obligations ； (III) If one party delays in performing its principal obligation and fails to do so within a reasonable period after being urged to do so ； (IV) One of the parties delays in performing its obligations or commits other breach of contract acts, thereby preventing the achievement of the contract’s purpose ； (5) Other circumstances stipulated by law. An open-ended contract concerning debts that are to be fulfilled continuously, in which the parties give notice within a reasonable period of time in advance

3. Handling after contract termination: Article 806 of the Civil Code deletes the provision in Article 10 of the Judicial Interpretation I on Construction Contracts, which states that \"if a contract is terminated due to breach by one party, such party shall compensate the other party for the losses incurred as a result.\" This deletion is done because Article 566 of the Contract Section of the Civil Code stipulates that \"the parties involved in the termination of a contract may request that things return to their original state or that other remedial measures be taken, and they also have the right to claim compensation for losses.\" To avoid duplication and conflicts, the corresponding provision in Article 10 of the Judicial Interpretation I on Construction Contracts was removed; this is still a result of the systematic structure established by the Civil Code. Both the contracting party and the employer can still rely on Article 566 for handling such situations. Article 566 of the Civil Code: After a contract is terminated, any obligations that have not yet been performed shall cease to be performed ； Where performance has already taken place, depending on the circumstances of such performance and the nature of the contract, the parties may request restoration to the original state or other remedial measures, and are entitled to claim compensation for losses. If a contract is terminated due to breach, the party with the right to terminate may demand that the breaching party bear liability for the breach, unless the parties have agreed otherwise. After the main contract is terminated, the guarantor shall still bear the guarantee liability for the civil liabilities that the debtor is obliged to assume, unless otherwise stipulated in the guarantee contract.

In other words, subcontracting is no longer allowed? Before, there was a distinction between illegal and legal subcontracting.

Previously, the definition of subcontracting was unclear; subcontracting was considered illegal

We don’t call it subcontracting; we call it diversified operations

Where there are policies above, there are countermeasures below; through diversified cooperation, strong parties join forces.