Affiliation, subcontracting, illegal assignment of tasks, illegal subcontracting｜Pay attention to all of these

Measures for the Identification, Investigation, and Handling of Illegal Acts in the Assignment and Contracting of Construction Projects (Draft for Comment) Article 1: These measures are formulated in order to regulate the activities related to the assignment and contracting of construction projects, ensure project quality and construction safety, effectively curb illegal practices such as illegal assignment, subcontracting, unlawful sub-division of work, and affiliation, and safeguard the order of the construction market as well as the legitimate rights and interests of the main parties involved in construction projects. They are established in accordance with laws and regulations such as the Building Law, the Bidding Law, the Contract Law, the Regulations on Quality Management of Construction Projects, the Regulations on Work Safety in Construction Projects, and the Implementing Regulations of the Bidding Law, taking into account the practices in the construction industry. Article 2: The construction projects referred to in these measures include building constructions and municipal infrastructure projects. Article 3: The Ministry of Housing and Urban-Rural Development is responsible for the unified supervision and management of the identification and investigation of illegal acts related to the assignment and contracting of construction projects across the country. (Note: The original text of the “Measures for the Identification, Investigation and Management of Illegal Acts Such as Subcontracting and Unlawful Assignment in Construction Projects (Trial)” (hereinafter referred to as the “original text”) states that “The Ministry of Housing and Urban-Rural Development is responsible for the unified supervision and management of the identification and investigation of illegal acts such as unlawful contracting out, subcontracting, illegal assignment, and unauthorized affiliation in construction projects nationwide.” ”) Local people’s government departments in charge of housing and urban-rural construction at or above the county level are specifically responsible for identifying and investigating illegal acts related to the contracting and subcontracting of construction projects within their respective administrative regions. (Note: The original text reads, “The housing and urban-rural development authorities at the county level and above are responsible for identifying and investigating illegal practices such as the unlawful assignment of construction projects, subcontracting, illegal sub-subcontracting, and affiliation within their respective administrative areas.”) ”) The illegal acts of contracting and subcontracting referred to in these regulations specifically mean illegal assignment of contracts, subcontracting, unlawful division of contracts, and affiliation without proper authorization. (Note: Added) Article 4: The term \"illegal contracting\" as used in these regulations refers to acts that violate laws and regulations, such as contractors assigning projects to entities or individuals without the appropriate qualifications, splitting projects into smaller parts for contracting, carrying out direct contracting in an illegal manner, or violating the statutory procedures for contracting. Article 5 Contracting out work in violation of the law occurs under any of the following circumstances: (1) The project owner contracts out the work to an individual ； (II) The project owner assigns the project to a construction unit that does not possess the appropriate qualifications or a safety production license ； (III) Illegally awarding contracts directly without following the statutory procedures, including failing to conduct tendering when it is required by law, or failing to apply for direct contract awarding when required by law or having such an application rejected ； (IV) Conducting contracting without following the statutory procedures, including failing to issue tender announcements as required by law, failing to go through the necessary pre-approval procedures for contracting as mandated by law, and engaging in invited bidding without fulfilling the required approval procedures, etc ； ((III) (IV) refer to the third sub-point of the original text: \"Failing to follow the statutory procedures for contract awarding, including failing to conduct tenders when required by law, or failing to apply for direct awarding when necessary, or applying without approval\" ； ”(Refined) (V) The project owner sets unreasonable bidding conditions, thereby restricting or excluding potential bidders or actual bidders ； (VI) The project owner divides the construction of a single project into several parts and assigns them to different general contractors or specialized contractors for execution ； (7) The project owner violates the terms of the construction contract and, without the consent of the contractor, demands through various means that the contractor select subcontractors designated by the project owner ； (Note: Regarding points 6 and 7 of the original text: “The project owner subcontracts again the individual projects or sub-projects within the scope of the construction contract”) ； ”“The construction entity violates the terms of the construction contract by using various means to require the contractor to select its designated subcontractors ； ”Merger, etc.) (8) Other illegal acts of contract awarding stipulated by laws and regulations. Article 6 The term \"subcontracting\" as used in these measures refers to the act whereby, after undertaking a project, a construction unit fails to fulfill the responsibilities and obligations stipulated in the contract, and instead assigns the entire project it has undertaken, or divides it into parts and assigns those parts to other units or individuals for construction under the guise of subcontracting. Article 7 In any of the following circumstances, it shall be deemed as subcontracting, unless there is evidence proving that it constitutes affiliation or other illegal acts: (1) The general contracting unit or specialized contracting unit fails to establish a project management organization at the construction site, or fails to assign key management personnel such as a project manager, technical supervisor, quality control supervisor, and safety management supervisor; consequently, it does not fulfill its management obligations nor organize and manage the construction activities of the project ； (II) The general construction contractor or the specialized contractor fails to fulfill its management obligations, charging fees only to the actual construction party, while the procurement of major building materials, components, and construction equipment is carried out by other entities or individuals ； (III) The scope of work undertaken by the labor service contractor covers the entire project contracted by the general construction contractor or the specialized contractor; the labor service contractor is entitled to receive all the amounts related to the project price, minus the \"management fee\" that must be paid to the general construction contractor or the specialized contractor ； (IV) The general construction contractor or the specialized contractor, by means of cooperation, joint ventures, individual contracting, or other similar forms or under such names, directly or indirectly assigns all the projects it has contracted to other units or individuals for construction ； (5) The entity that awards the contract for a specialized project is not the general contractor or specialized contractor for that project, unless the project owner acts as the awarding entity in accordance with the agreement ； (Note: Added) (VI) The employer of the labor subcontracting is not the general contractor for the construction of the project, the specialized contractor, or the contractor for the specialized subcontracting work ； (Note: Added) (VII) Among the project manager, technical supervisor, quality management supervisor, and safety management supervisor assigned by the construction unit to the construction site, one or more of them do not have an employment contract with the construction unit, or no labor wage or social pension insurance relationship has been established with them ； (Note: Newly added) (8) There is no payment relationship regarding project funds between the actual general contracting unit or specialized contracting unit and the construction entity; or the unit specified in the payment vouchers for project funds does not match the contracting unit stated in the construction contract, and no reasonable explanation or supporting documentation can be provided ； (Note: Added) (IX) For the main building materials, components, and engineering equipment that, as stipulated in the contract, are to be purchased or leased by the general construction contractor or the specialized contractor, if they are instead purchased or leased by other entities or individuals, or if the construction contractor fails to provide relevant purchase or lease contracts, invoices, and other supporting documents, nor can it give a reasonable explanation and provide such evidence ； (Note: Added) (X) Other subcontracting activities stipulated by laws and regulations. When two or more entities form a consortium to undertake a project, if, as stipulated in the consortium’s division of labor agreement or during the actual implementation of the project, one of the consortium members does not carry out any construction work nor organize or manage such work, and yet charges the other members of the consortium management fees or similar amounts, it is considered that this member has subcontracted the project to another member of the consortium. (Note: Added) (Note: This clause removes sub-points 1 and 2 from the original text: “(1) The contractor assigns all the work it has contracted out to other units or individuals for completion”) ； ”“(II) The general construction contractor or specialized subcontractor breaks down the entire project under its contract and then subcontracts it to other entities or individuals for execution under the guise of subcontracting ； ”) Article 8: The term “illegal subcontracting” as used in these Measures refers to the act whereby a construction contractor, after being awarded a project, violates laws and regulations by subcontracting the entire project or any of its parts to other entities or individuals for construction. (Note: The phrase “or the provisions of the construction contract regarding project subcontracting” has been removed.) Article 9 Subcontracting in violation of the law occurs under any of the following circumstances: (1) The contractor subcontracts a project that requires professional contracting qualifications to a unit or individual that does not possess the corresponding qualifications or safety production permits ； (II) If the general contractor for construction subcontracts the construction of the main structure of the works covered by the general construction contract to other entities, except for steel structure projects ； (Note: Replace “housing construction projects” in the original text with “projects within the scope of the general construction contract”). (III) When the contractor of a specialized subcontract assigns the non-labor-related parts of the specialized work he has been contracted to carry out to another party ； (Note: Replace “professional subcontractor” in the original text with “professional subcontractor for construction work”). (IV) When a labor service contractor subcontracts the labor services it has been contracted to carry out ； (Note: Replace “labor subcontracting unit” in the original text with “labor service contractor”). (V) In addition to charging fees for labor services, the labor service contractor also charges costs for major building materials and large and medium-sized construction machinery and equipment ； (Note: The term “labor subcontracting unit” in the original text was kept unchanged; the phrase “payment for reusable materials” was removed.) (6) Other acts of illegal subcontracting as stipulated by laws and regulations. Article 10: The term “affiliation” as used in these measures refers to the act of a unit or individual undertaking projects in the name of another qualified construction company. The contracting of projects referred to in the preceding paragraph includes activities such as participating in bidding, entering into contracts, handling relevant construction procedures, and carrying out construction work. Article 11 The following circumstances constitute affiliation: (1) A unit or individual without the necessary qualifications borrows the qualifications of another construction unit to undertake projects ； (II) When qualified construction units borrow each other’s qualifications to undertake projects, including cases where those with a lower qualification level borrow from those with a higher level, those with a higher qualification level borrowing from those with a lower level, or cases of borrowing between entities with the same qualification level ； (III) In the circumstances specified in items (1) to (9) of the first paragraph of Article 7 of this Law, there is evidence proving that it constitutes affiliation ； (IV) Other affiliated activities stipulated by laws and regulations. (Note: This clause has removed sub-points 3, 4, 5, 6, and 7 from the original text: “(III) The employer of the professional subcontracting is not the general contractor or professional contractor responsible for the construction of the project, unless the project owner acts as the employer in accordance with the contract.”) ； ”“(IV) The employer of the labor subcontracting is not the general contractor, specialized contractor, or specialized subcontractor for the construction of the project ； ”“(5) Among the project manager, technical supervisor, quality management supervisor, and safety management supervisor assigned by the construction unit to the construction site, one or more of them do not have an employment contract with the construction unit, or no labor wage or social pension insurance relationship has been established with it ； ”“(VI) There is no payment relationship regarding project funds between the actual general contractor or specialized contractor and the project owner, or the entity named on the payment voucher for the project funds is different from the contractor specified in the construction contract, and no reasonable explanation nor supporting documents can be provided ； ”“(7) In cases where the contract stipulates that the general construction contractor or the specialized contractor is responsible for purchasing or leasing the main building materials, components, and engineering equipment, or the construction machinery and equipment to be leased, and such items are purchased or leased by other units or individuals; or when the construction contractor fails to provide proof such as purchase or lease contracts and invoices, and is unable to give a reasonable explanation or provide relevant documentation ； ”) Article 12: Any entity or individual who discovers illegal activities such as unlawful assignment of contracts, subcontracting, illegal sub-division of work, or affiliation without proper authorization may file a report with the housing and urban-rural development authorities at the county-level or higher level where the project is located. (Note: In the original text, “the construction unit and the supervision unit” has been changed to “any unit or individual”). (Note: The part of the original text that read “If the construction unit and the supervision unit discover that the contractor is engaged in illegal activities such as subcontracting, unlawful sub-division of work, or affiliation with other entities, they should promptly report this to the housing and urban-rural development authorities at the county-level or higher level where the project is located.”) ” “If a general construction contractor or specialized subcontractor discovers that a subcontractor is engaged in illegal practices such as unauthorized subcontracting or acting as a front for others, it shall promptly report this to the construction entity and to the housing and urban-rural development authority at or above the county level where the project is located ； If any illegal subcontracting practices by the construction entity are detected, it is necessary to promptly report them to the competent housing and urban-rural development department of the people’s government at or above the county level where the project is located. ” “Other units and individuals who discover illegal activities such as unlawful assignment of contracts, subcontracting, illegal sub-division of work, or affiliation without authorization may report these incidents to the housing and urban-rural development authorities at the county level or above where the project is located, and provide relevant evidence or clues. ”) The housing and urban-rural development authorities receiving reports shall accept, investigate, determine, and handle them in accordance with the law. Except in cases where it is impossible to inform the whistleblower, they shall promptly inform the whistleblower of the results of the investigation and handling. Article 13: The housing and urban-rural development authorities at the county level or above, which are specifically responsible for identifying and investigating illegal activities related to the contracting of construction projects within their respective administrative regions, shall, in the course of carrying out such investigations, accept and verify any clues or evidence related to cases referred to or transferred to them by courts, arbitration bodies, supervision agencies, and other entities. They shall handle these cases in accordance with the facts that can be ascertained, and shall inform the agencies that referred or transferred the case materials of the outcomes of such handling. (New) Article 14: The housing and urban-rural development authorities at the county level and above shall, in relation to illegal practices such as illegal contracting, subcontracting, unlawful subcontracting, and affiliation that are identified during the supervision and management of the construction market and construction sites, conduct investigations in accordance with the law, make determinations in line with these provisions, and impose administrative penalties as required by law. (1) Where a construction entity contracts out a project to a construction unit that does not possess the requisite qualification level, penalties shall be imposed in accordance with Article 65 of the Construction Law and Article 54 of the Regulations on the Quality Management of Construction Projects. In cases where a construction entity subcontracts a construction project in pieces, penalties shall be imposed in accordance with Article 65 of the Construction Law and Article 55 of the Regulations on the Quality Management of Construction Projects. (Note: Article 65 of the Construction Law stipulates that if a contracting party assigns a project to a contractor that does not possess the required qualifications, or if it divides a construction project and assigns it in violation of the provisions of this law, it shall be ordered to make corrections and fined. Those who undertake projects beyond the qualification level permitted for their organization shall be ordered to cease such illegal activities, fined, and may be ordered to suspend operations for rectification or have their qualification level reduced ； In serious cases, the qualification certificate shall be revoked ； Any illegal gains shall be confiscated. Those who undertake projects without obtaining the requisite qualification certificates shall be prohibited from doing so and fined ； Any illegal gains shall be confiscated. Those who obtain qualification certificates by fraudulent means have their certificates revoked and are fined ； If a crime is constituted, criminal liability shall be pursued in accordance with the law. Articles 54 and 55 of the Regulations on Quality Management of Construction Projects stipulate that: Article 54 In case a construction entity violates the provisions of these regulations by assigning a construction project to survey, design, or construction units that do not possess the appropriate qualification levels, or by entrusting such a project to an engineering supervision unit that lacks the necessary qualifications, it shall be ordered to make corrections and shall be fined between 500,000 yuan and 1,000,000 yuan. Article 55: If a construction entity violates the provisions of these regulations by dividing a construction project and subcontracting it, it shall be ordered to make corrections and shall be fined not less than 0.5 percent but not more than 1 percent of the contract price for the project ； For projects that use all or part of state funds, the execution of the project or the disbursement of funds may be suspended. ) (II) Construction units found to be engaged in subcontracting or illegal subcontracting activities shall be punished in accordance with Article 67 of the Building Law and Article 62 of the Regulations on the Quality Management of Construction Projects. (Articles 67 of the Construction Law and Article 62 of the Regulations on Quality Management of Construction Projects) Article 67: If a contracting unit subcontracts the project it has been entrusted with, or carries out subcontracting in violation of the provisions of this law, it shall be ordered to make corrections, its illegal gains shall be confiscated, and a fine shall be imposed; it may also be ordered to suspend operations for rectification or have its qualification level reduced ； In serious cases, the qualification certificate shall be revoked. Where a contracting entity commits any of the illegal acts specified in the preceding paragraph, it shall bear joint and several liability with the entity to which the project was subcontracted or illegally assigned for any losses caused by the failure of such subcontracted or illegally assigned project to meet the prescribed quality standards. Article 62: If a contracting entity, in violation of the provisions of these regulations, subcontracts or illegally divides the project it has been contracted to undertake, it shall be ordered to make corrections; its illegal gains shall be confiscated, and the survey and design entities shall be fined between 25% and 50% of the survey and design fees stipulated in the contract ； Impose 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 serious cases, the qualification certificate shall be revoked. If a project supervision agency transfers its project supervision services, it shall be ordered to make corrections, its illegal gains shall be confiscated, and it shall be fined not less than 25 percent but not more than 50 percent of the supervision fees stipulated in the contract ； An order to suspend operations for rectification can be issued, as well as a reduction in the qualification level ； In serious cases, the qualification certificate shall be revoked. ) (III) Construction units or individuals found to be engaged in such affiliation practices shall be punished in accordance with Article 65 of the Building Law and Article 60 of the Regulations on Quality Management of Construction Projects. (Note: Article 60 of the Regulations on Quality Management of Construction Projects stipulates that where, in violation of these regulations, survey, design, construction, or engineering supervision units undertake projects beyond the scope permitted by their respective qualification levels, they shall be ordered to cease such illegal activities; and the survey, design, or engineering supervision units shall be fined between one time and two times the amount specified in the contract for survey fees, design fees, or supervision charges.) ； Impose a fine on the construction contractor ranging from 2% to 4% of the contract price for the project; order it to suspend operations for rectification, or reduce its qualification level ； In serious cases, the qualification certificate shall be revoked ； Any illegal gains shall be confiscated. Those who undertake projects without obtaining the required qualification certificates shall be shut down and fined in accordance with the provisions of the preceding paragraph ； Any illegal gains shall be confiscated. Those who obtain qualification certificates by fraudulent means to undertake projects shall have their qualification certificates revoked and be fined in accordance with the provisions of the first paragraph of this article ； Any illegal gains shall be confiscated. ) (IV) Construction units found to have transferred or lent their qualification certificates, or to have allowed others to undertake projects in their name in other ways, shall be punished in accordance with Article 66 of the Building Law and Article 61 of the Regulations on the Quality Management of Construction Projects. (Note: Article 66 of the Building Law: If a construction enterprise transfers or lends its qualification certificates, or allows others to undertake projects in the name of the enterprise in any other manner, it shall be ordered to make corrections, the illegal gains shall be confiscated, and a fine shall be imposed; it may also be ordered to suspend operations for rectification or have its qualification level reduced.) ； In serious cases, the qualification certificate shall be revoked. The construction company, together with the entity or individual that uses its name, shall bear joint and several liability for any losses resulting from the fact that the work carried out does not meet the specified quality standards. Article 61 of the Regulations on Quality Management of Construction Projects: Where, in violation of the provisions of these regulations, survey, design, construction, or project supervision units permit other units or individuals to undertake projects in the name of such units, they shall be ordered to make corrections; any illegal gains obtained shall be confiscated, and such survey, design, and project supervision units shall be fined not less than one time but not more than two times the amount of survey fees, design fees, and supervision charges stipulated in the contract ； Impose a fine on the construction contractor of not less than 2% but not more than 4% 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 serious cases, the qualification certificate shall be revoked. ) (V) In the case of imposing financial penalties on the project owner and the construction contractor, in accordance with Article 73 of the Regulations on the Quality Management of Construction Projects, penalties shall also be imposed on the persons in charge who are directly responsible for such actions, as well as other individuals who bear direct responsibility. (Note: Article 73 of the Regulations on Quality Management of Construction Projects stipulates that where a fine is imposed on a unit in accordance with these regulations, the persons in charge who are directly responsible for the offense and other persons directly liable shall be fined between 5% and 10% of the amount of the fine imposed on the unit.) ) (VI) If registered practitioners fail to comply with laws and regulations, penalties shall be imposed in accordance with Article 58 of the Regulations on Safety Management in Construction Projects. If registered practitioners violate laws and regulations and cause quality accidents due to their negligence, they shall be punished in accordance with Article 72 of the Regulations on Quality Management of Construction Projects. (Note: Article 58 of the Regulations on Work Safety in Construction Projects stipulates that if a registered professional fails to comply with laws, regulations, and mandatory standards for construction projects, he or she shall be ordered to suspend practice for not less than 3 months but not more than 1 year.) ； In severe cases, the professional qualification certificate will be revoked, and registration will not be permitted for 5 years ； Those responsible for major safety accidents shall never be registered again ； If a crime is constituted, criminal liability shall be pursued in accordance with the relevant provisions of the Criminal Law. Article 72 of the Regulations on Quality Management of Construction Projects stipulates that in case any registered professional such as a registered architect, registered structural engineer, or supervision engineer causes a quality accident due to negligence in violation of these regulations, they shall be ordered to suspend their practice for 1 year ； In the event of a major quality accident, the professional qualification certificate shall be revoked, and registration shall not be granted for 5 years ； In cases of particularly severe circumstances, registration will be prohibited for life. ) Article 15: The housing and urban-rural development authorities at the county level and above shall, in addition to imposing the corresponding administrative penalties in accordance with Article 14 of these measures on entities and individuals that engage in illegal activities such as illegal subcontracting, assignment of contracts, or affiliation without authorization, also be able to take the following administrative measures: (1) If a construction entity engages in illegal subcontracting and refuses to make corrections, or if the corrections made still do not meet the required standards, relevant procedures such as quality supervision and construction permits shall not be granted in accordance with the law. For projects that use all or part of state funds, the illegal subcontracting practices of the project owner shall be reported to their superior competent authorities as well as the discipline inspection and supervision departments, and it is recommended that corresponding administrative sanctions be imposed on the supervisors directly responsible for the project owner and other persons directly liable. (II) For construction units found to have engaged in illegal activities such as subcontracting, unlawful subletting, affiliation, transferring or lending qualification certificates, or allowing others to undertake projects in the name of the unit in other ways, they may be restricted by law from participating in bidding activities and undertaking new projects in the location where such illegal acts occurred for a period of 3 months. Additionally, an inspection will be conducted to determine whether their corporate qualifications meet the required standards; if they fail to meet these standards, they shall be given a deadline to make corrections. If they still fail to meet the requirements after making such corrections, the authority responsible for granting qualifications will revoke their qualification certificates. Construction firms that engage in subcontracting twice within 2 years, illegal subcontracting, affiliation, transferring or lending qualification certificates, or otherwise allowing others to undertake projects in the name of the firm shall be ordered to suspend operations for more than 6 months; during this period, they are not allowed to take on any new projects. The authority responsible for licensing qualifications will downgrade the qualification level of construction firms that have engaged in subcontracting, illegal subcontracting, affiliation, transferring or lending qualification certificates on more than three occasions within 2 years, or that have allowed others to undertake projects in their name in any other manner. (III) If a registered professional fails to comply with laws and regulations and serves as the project manager for a construction unit in a project where subcontracting has been identified, their professional qualification certificate shall be revoked; they shall not be allowed to be registered for 5 years, nor may they serve as a project manager for any construction unit again. Individuals found to be engaged in such fraudulent practices shall no longer serve as the project leader for the construction unit in question ； Those whose professional qualification certificates have been revoked shall have their certificates taken away, and they will not be allowed to register for a professional qualification within 5 years ； In the event of a major quality or safety accident, their professional qualification certificate shall be revoked, and they shall not be registered for life. Article 16: The housing and urban-rural development authorities at the county level and above shall record any instances of illegal contracting, subcontracting, illegal subcontracting arrangements, or affiliation-related violations that are identified, along with the corresponding penalties, in the credit records of the relevant entities or individuals. These records shall also be made public, and the information shall be reported step by step to the Ministry of Housing and Urban-Rural Development for publication on the National Construction Market Supervision and Integrity Information Platform. Article 17: Professional projects other than building construction and municipal infrastructure projects shall be governed by these measures. The provincial people’s **housing and urban-rural development authorities may, in light of local conditions, formulate corresponding implementation rules in accordance with these measures. Article 18 These Provisions shall be interpreted by the Ministry of Housing and Urban-Rural Development. Article 19 These measures shall come into force as of [date]. The \"Administrative Measures for the Identification, Investigation, and Handling of Illegal Acts such as Subcontracting and Unlawful Division of Work in Construction Projects (Trial)\\" issued by the Ministry of Housing and Urban-Rural Development on October 1, 2014, is also repealed simultaneously. Source: Official website of the Ministry of Housing and Urban-Rural Development

The terms are detailed, but the implementation is poor.

Yes, if it is implemented strictly, there’s actually no need to establish any new regulations.

In fact, it’s not the regulations and relevant agencies that are lacking; rather, it’s the issue of how these regulations can be effectively enforced in practice. Currently, there are people in society who deliberately exploit legal loopholes for their own profit. In my opinion, such individuals should be subject to stricter constraints. Additionally, some agencies fail to fulfill their roles properly. The idea of having supervisors in place is good, but in reality, many of them end up acting as accomplices to contractors who break the law, abandoning any sense of professional ethics. I believe that stricter penalties should be imposed on supervisors and general contractors, and a lifetime accountability system should be implemented for projects.