Viewpoint... The internal contract agreement in the field of construction engineering is invalid, how to deal with the management fee?

In the search of the relevant jurisprudence of judicial practice, the author summarizes the views in judicial practice as follows:

The contract is invalid, but the subcontractor has actually performed its management duties and paid the corresponding management costs, and may charge a certain management fee in accordance with the contract; if there is no management and no actual payment, the subcontractor has no right to demand the payment of management fees.

1. Xu Rongming claimed to refund the management fee of 5 million yuan to Zhongguancun Construction Company as the contract management fee agreed by both parties in the internal contract agreement.Although the internal contract agreement is invalid, and the agreement that Zhongguancun Construction Company will charge 3% of the contract management fee according to the total settlement amount is also invalid, Zhongguancun Construction Company will set up a construction project department after organizing the bidding for the project involved. During the construction process, the project manager and other personnel will participate in the construction management, fulfilling the management responsibility and paying the corresponding management cost, it is in line with the principle of fairness and a reasonable balance between the interests of both parties to determine the management fee of 3% of the project cost charged by Zhongguancun Construction Company with reference to the internal contract agreement.According to the price of the completed project, Xu Rongming shall pay a management fee of 2270057.78 yuan (75668592.71 yuan × 3%) to Zhongguancun Construction Company. Zhongguancun Construction Company has collected a management fee of 5 million yuan, and the remaining management fee of 2729942.22 yuan (5 million yuan -2270057.78 yuan) should be refunded to Xu Rongming.

Source:(2021) Supreme Law Minzong 663

2. The "Internal Contract Agreement" signed by Chen Ming and Guizhou Eight Construction, because Chen Ming has no construction qualification should be an invalid contract, and the agreement on the liability for late payment in the Settlement Agreement signed by both parties is also invalid. Chen Ming requested Guizhou Eight Construction to bear the liability for breach of contract according to the above invalid agreement, which lacks legal basis.

In connection with the construction of the project involved in the case, Guizhou Bajian established a project department and appointed management personnel to manage the construction of the project and carry out the payment and settlement of the project funds. According to this, the original judgment was based on the agreement in the "Settlement List of Project Payment for Building C" reached between Chen Ming and Guizhou Bajian that Guizhou Bajian should charge a management fee of 4% of the total project payment. It is not improper to deduct the management fee charged by Guizhou Bajian in the project payment in this case.

Source:(2021) Supreme Famin Shen No. 5511

3. Regarding the issue of whether the management fee should be returned, although the subcontract between the plaintiff and Yongtai Company is invalid, and the terms of collecting management fee agreed in the contract are also invalid, it can be seen from the actual performance of the contract by both parties and the evidence provided by the defendant that Yongtai Company has set up a project department to assign special personnel to handle matters such as the receipt and delivery of progress payment, payment of materials and equipment in the construction process, it also performs the coordination work between the actual builder and the contractor, so the agreed management fee includes the necessary management expenses of Yongtai Company, which is different from the situation of simply subcontracting to obtain illegal price difference without management.At the same time, in accordance with the principles of good faith and fairness, both parties are at fault for the invalidity of the contract, the plaintiff should not obtain more benefits from the invalid contract than the valid contract, Yongtai Company has performed certain management duties, the plaintiff should also bear reasonable management costs in the case of the benefit.At present, the project payment after tax is 49564003.04 yuan (52389468 yuan-business tax and other 1757174.58 yuan-enterprise income tax 1068290.38 yuan). Yongtai Company has collected a management fee of 1407937 yuan, accounting for 2.84, which is fair and reasonable and does not exceed the amount foreseen by the plaintiff. ThereforeThe plaintiff asked Yongtai Company to return the management fee and did not support it. Similarly, Yongtai Company requested to deduct the management fee for the remaining project funds and did not support it.

Source:(2021) Lu 06 Min Zhong No. 3304, Yantai Intermediate People's Court of Shandong Province

4. When the construction contract of the construction project is invalid due to illegal subcontracting, illegal subcontracting or affiliation, the treatment of the "management fee" charged by the subcontractor as agreed in the contract shall be judged according to the purpose of the contract in the light of the case.If the "management fee" is part of the project price, and the subcontractor also actually participates in the construction organization management coordination, can refer to the contract agreement to deal with; for the subcontractor purely through subcontracting for profit, did not actually participate in the construction organization management coordination, after the contract is invalid to claim "management fee", should not be supported. The parties to the contract shall not support the adjustment of the project price on the ground that the "management fee" as the contract price should be collected. Based on the relativity of the contract, the non-contract parties cannot claim to adjust the amount of work to be paid by the agreement between the subcontractor and the subcontractor regarding the management fee.

Source: Minutes of the Judges Meeting of the Second Circuit Court of the Supreme People's Court, Part II, p233

Because the internal contract agreement contract is invalid, the management fee is illegal income, the claim management fee lacks legal basis, so it is not supported.

Judicial cases:

1. Second instance stage: Kyushu Company filed an appeal. According to the Internal Contract signed with Cao Shuqing and Tan Chengguo, Cao Shuqing should also pay him a management fee of 1365500 yuan. In this regard, our hospital believes that Kyushu Company undertook the Chuxiong Zhaoshun Wealth Center project from Zhaoshun Company, and then signed the Internal Contract to subcontract the whole project to Cao Shuqing and Tan Chengguo, because Cao Shuqing and Tan Chengguo had no construction qualification,The Internal Contract is an invalid contract. Accordingly, Kyushu Company's claim for Cao Shuqing to pay management fees to him in accordance with the "Internal Contract" lacks factual and legal basis, and this court does not support it.

The retrial stage: the second instance judgment found that the case involved in the "internal contract" invalid in accordance with the law. Article 4 of the Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes stipulates that the contractor illegally subcontracted or illegally subcontracted the construction project, or the unqualified actual builder borrows the name of a qualified construction enterprise. The act of signing a construction contract with others is invalid. The people's court may, in accordance with the provisions of Article 134 of the General Principles of the Civil Law, confiscate the illegal gains already obtained by the parties.The management fee obtained by Kyushu Company as a result of subcontracting is illegal, and Cao Shuqing claims that Kyushu Company can be required to refund the management fee on the basis of the invalidity of the contract, which has no legal basis.Cao Shuqing also argued that if the court of second instance explained the invalidity of the contract, it could claim compensation from Kyushu on the basis of the invalidity of the contract. In this regard, the Court believes that, according to Article 58 of the the People's Republic of China Contract Law, after the contract is invalid or revoked, the party at fault shall compensate the other party for the losses suffered as a result, and if both parties are at fault, they shall bear the corresponding responsibility. Cao Shuqing knows that he does not have the relevant qualifications for construction projects, and the subcontracting case involves the project, and he should bear the corresponding responsibility for the losses caused by the invalidity of the contract.

Source:(2016) Yunmin Zhong No. 661, (2017) Supreme Famin Shen No. 2327

2. Hu Guoqiang does not approve the other amounts that should be deducted from Shandong Construction Fourth Company's appeal claim, and Shandong Construction Fourth Company has not submitted evidence to prove that it has actually paid, which can be resolved separately after the actual occurrence.As the internal contract agreement signed between Shandong Construction Fourth Company and Hu Guoqiang is invalid, Shandong Construction Fourth Company requires deduction of management fees, etc., which lacks legal basis and our hospital does not support it.

Source:(2020) Lu Min Zhong No. 719 Shandong Higher People's Court

3. Regarding the focus of the dispute 2, Golden Sun Company detained the management fee of 20,562 yuan {(Yumin County No.1 Middle School 5,313,773.41 yuan + Jiyake Township 3,134,333.67 yuan-Golden Sun Company project payment 1,729,369 yuan) × 3%} according to the Internal Contract Agreement,According to Article 4 of the Interpretation of the Supreme People's Court on the Application of Law in the Trial of Disputes over Construction Contracts: "The act of a contractor illegally subcontracting or subcontracting a construction project or an unqualified actual builder signing a construction contract with another person in the name of a qualified construction enterprise is null and void. The people's court may, in accordance with Article 134 of the General Principles of the Civil Law, confiscate the illegal gains already obtained by the parties." therefore, there is no legal basis for wang guangzhi to ask the golden sun company to return the management fee. The court corrected the error in the application of law in the original judgment.

Source:(2022) No. 27, Xin40 Min, Xinjiang Uygur Autonomous Region Higher People's Court, Yili Kazakh Autonomous Prefecture Branch

Based on the above cases, it is not difficult to find two opposing tendencies in judicial practice. One view is that the subcontractor can claim the management fee by actually participating in the management and paying the cost, while the other view is that the management fee is considered to be illegal. There is a certain basis for both views, for example, the second view that it is identified as illegal income actually refers to the relevant opinions in practice, "the profits obtained by the contractor's subcontracting, illegal subcontracting of construction projects and the management fees paid by the actual builder may be collected by the people's court." Opinions of the Higher People's Court of Jiangsu Province on Several Issues Concerning the Trial of Disputes over Construction Contracts for Construction Projects (abolished).

I agree with the first view. Although the internal contracting agreement is invalid, it is reasonable to advocate a certain percentage of management fees because the subcontractor actually participated in the management and paid a certain cost. In practice, the construction project contract is invalid but the acceptance of qualified cases, labor costs, materials costs are generally supported. Although the management fee is an indirect cost, but according to the "construction and installation project cost project composition" (standard [2013] No. 44), the construction and installation project cost project is divided into labor costs, materials costs, construction equipment use fees, enterprise management fees, profits, fees and taxes according to the composition of the cost components. Enterprise management fees are also part of the installation costs of construction projects and should be treated in the same way as labor costs and material costs in judicial practice. The management fee of the internal contract agreement is a kind of enterprise management fee. The first point of view in the judicial precedent is more realistic. The subcontractor actually participated in the project management and carried out the organization and coordination work. It is not simply for profit by affiliation and providing qualifications. Therefore, even if the contract is invalid, it should support a certain management fee. It would be unfair to deny it only because the contract is invalid. Of course, the management fee cannot be fully in accordance with the proportion or amount agreed upon in the contract, and should be dealt with on the basis of examining the actual cost paid by the subcontractor.