Viewpoint... Analysis of disputes over "back-to-back" contract terms between construction enterprises and sub-suppliers.

Since 2019, real estate policy and market changes, coupled with the superimposed effect of the new crown epidemic, have put greater market pressure on construction companies. At the same time, the "downstream" sub-suppliers of construction enterprises are increasingly lacking reasonable "patience" for their receivables, and the number of litigation or arbitration disputes against construction enterprises by sub-suppliers has increased significantly, which has created a greater "squeeze" pressure on construction enterprises. In order to transfer or avoid the owner's project payment risk, construction enterprises often agree on "back-to-back" contract terms with sub-suppliers.

On the basis of combing the manifestation, nature and effect of the "back-to-back" contract terms, this paper puts forward some opinions and suggestions on the design and application of the "back-to-back" contract terms of construction enterprises, and actively and properly solves the disputes caused by the "back-to-back" contract terms.

In this paper, the sub-supplier of construction enterprises is not a strict concept of legal subject, mainly refers to the construction enterprises in its contracted construction projects of subcontracting, subcontracting, affiliated units or individuals, as well as materials, equipment, labor supply units or individuals and other broader subjects. "Back-to-back" contract terms appear in contracts of a variety of natures, such as subcontracting, subcontracting, affiliation, sale and lease, between construction enterprises and sub-suppliers. And "back-to-back" contract terms are not clearly defined in law. Therefore, in practice, the "back-to-back" contract terms are expressed in a variety of forms, the following are several common forms of expression:

1, the owner to the construction enterprise payment is a prerequisite for the construction enterprise to pay the sub-supplier.

In the case of "(2020) Supreme Court Minzhong No. 106", the subcontracting contract stipulates that "60% of the completion settlement amount of the subcontracting project shall be paid within 45 days after the completion settlement and the final audit entrusted by the employer is qualified (and the contractor has received the corresponding project payment from the employer for 15 working days)... If the construction unit (employer) fails to pay the contractor on time, the contractor fails to pay the subcontractor according to the time agreed in the contract. When the project payment, it is not considered a breach of contract by the contractor".

Shanghai No. 2 Intermediate People's Court "(2021) Hu 02 Min Zhong No. 392" case in the subcontracting contract stipulates that "if the construction unit fails to pay the project progress payment and project settlement payment to Party A, the period for Party A to pay the project progress payment and project settlement payment to Party B shall be extended accordingly, and Party A shall not be liable for breach of contract".

2. The settlement price of the subcontract is based on the settlement price between the construction enterprise and the owner, and a certain percentage of the "floating rate" or "management fee" is taken ".

In the case of "(2008) Zhe Min Yi Zhong Zi No. 192" of Zhejiang Higher People's Court, it is stipulated in the subcontract that "the relevant settlement shall be subject to the terms of the contract and settlement basis signed between Party A and Party C (the owner's unit)";

(2021) Su 13 Min Zhong No. 1107 "case of Suqian Intermediate People's Court of Jiangsu Province stipulates in the team contract that" the total contract price of the project is provisional, and the final price shall be subject to the audit price of the audit unit after completion and acceptance, and the downward floating rate of the project concession is 5.7. The project valuation method is implemented by the national 2004 list valuation standard and Jiangsu Province 2004 valuation table, and the relevant funds are implemented by the terms of the construction party's large contract ".

3. The settlement and payment of the sub-supplier shall be carried out in accordance with the settlement and payment agreed in the contract between the construction enterprise and the owner.

In this case, there is often a "back-to-back" contract clause "agreement is unclear. In the case of "(2021) Beijing 03 Minzong No. 7492" of Beijing No.3 Intermediate People's Court, the subcontract stipulated that "the contract between Party A and Hesheng Company shall be attached to the contract (the payment method shall be paid according to the back-to-back payment method between Party A and Hesheng Contract)". The court held that "there is no specific agreement on the back-to-back payment method, so it shall be deemed that both parties to be unclear"; in the case of "(2008) Zhe Min Yi Zhong Zi No. 192" of Zhejiang Higher People's Court, the subcontracting contract stipulates that "the relevant settlement shall be subject to the contract terms and settlement basis signed by Party A and Party C (the owner unit)", but it does not stipulate a specific payment time. The court does not support the construction enterprise that "the project price involved in the case shall be subject to the payment time determined in the general contracting contract, the claim that the conditions under which the sub-supplier demanded payment for the work were not fulfilled.

4, serial sales contract, lease contract in the "back-to-back" contract terms.

"Back-to-back" contract terms are commonly found in layers of subcontracted construction contracts, but in contract practice, "back-to-back" clauses also appear in serial sales contracts and lease contracts, and their manifestations are similar to those in construction contracts. The "back-to-back" contract terms are similar, and the essence of the terms is still the agreement of the buyer to transfer the risk to the seller. In the case of "(2021) Supreme Fa Min Shen No. 5750" of the Supreme People's Court, the second paragraph of Article 9 of the procurement contract stipulates that "Party B (Sinopec Fujian Branch) shall pay the full purchase price within 2 working days after receiving the end-user payment and the VAT invoice issued by Party A (Advanced Oil Depot Company) according to the settlement quantity".

Regarding the legal nature of "back-to-back" contract clauses, there are currently three views: conditional clauses, term clauses and neither conditional nor term clauses.

Some viewpoints hold that whether the owner can pay the construction enterprise project funds is an uncertain fact, whether it will eventually happen and when it will happen are uncertain. Therefore, the nature of "back-to-back" contract clauses should be determined as conditional clauses according to Articles 158 and 159 of the Civil Code. Whether the agreed payment terms are fulfilled determines whether the sub-suppliers' payment claims should be supported.

In the case of Ji Min Wu Zhong Zi No. 182 (2014) of Jinan Intermediate People's Court of Shandong Province, the court held: "Judging from the smooth performance of the contract and the purpose of agreeing on this clause, Shandong Road and Bridge Company's general contract for the project of Section I of Liangji Canal Bridge Project on Taibelou West Road in Jining City amounts to more than 0.2 billion yuan. If Shandong Road and Bridge Company needs to pay the subcontractor in advance before receiving the payment from the owner, shandong Road and Bridge Company is very difficult to have such ability to pay. Therefore, it was agreed that Shandong Road and Bridge Company would pay Chongqing Zhixiang Company after receiving the payment from the owner for the subcontracted project, which was conducive to the smooth performance of the contract and was equivalent to sharing the risk between the two parties. Article 15.5 of the contract stipulates:" Party A shall pay the project funds to Party B in a timely manner after receiving the project funds allocated by the owner. If the owner unit fails to allocate Party A's project funds in time, Party A has the obligation to actively pursue the project funds from the owner, but Party A shall not bear any liquidated damages and interest caused by the delay in payment to Party B. "The agreement also reflects from the side that Chongqing Zhixiang Company agrees that Shandong Road and Bridge Company will pay the project funds to Chongqing Zhixiang Company after receiving the project funds paid by the owner. From the perspective of trading habits and the principle of good faith, Shandong Road and Bridge Company applies for the owner to pay the project payment period by period according to the project progress and the quantities completed by each subcontractor. The supervision unit issues the payment certificate after examination. The owner allocates the project payment to Shandong Road and Bridge Company according to the payment certificate, and Shandong Road and Bridge Company pays the project payment to the relevant subcontractors according to the payment certificate. To sum up, although Chongqing Zhixiang Company's construction project has been completed and delivered to the acceptance, Shandong Road and Bridge Company has also applied for the owner to pay the corresponding amount, but whether the owner pays the corresponding amount determines whether Shandong Road and Bridge Company's payment terms are fulfilled and whether Chongqing Zhixiang Company's payment claim should be supported".

The view is that the owner's payment is a fact of certainty and that the owner's payment of the works is only a matter of the length of the payment period, so the nature of the "back-to-back" contract clause should be recognized as a term clause in accordance with the provisions of Article 160 of the Civil Code.

The problem with this view is that there is no clear deadline for the contractor to obtain payment from the owner, and in practice construction companies often take measures to delay the payment deadline and evade their obligation to pay to the sub-supplier. "However, in the contract with a time limit in Article 46 of the Contract Law, there is no provision for the parties to improperly accelerate or delay the arrival of the time limit, which makes the subcontractor unable to rely on when facing the general contractor maliciously evading the payment obligation. The provisions of Article 45, paragraph 2, of the Contract Law have to be applied by analogy, causing embarrassment in the application of the law".

According to this view, the conditions and time limit stipulated in Articles 159 and 160 of the Civil Code refer to the conditions and time limit attached to civil legal acts, and the achievement of the conditions determines the entry into force or expiration of the civil legal act, and the arrival of the time limit determines the entry into force or expiration of the civil legal act. If the "back-to-back" contract terms are understood as the conditions and periods attached to civil legal acts, then the entire subcontract has not yet entered into force or the entire "back-to-back" contract terms have not yet entered into force before the attached conditions are fulfilled or the attached period arrives, which is obviously contrary to the original intention of the construction enterprise to formulate the "back-to-back" contract terms. Therefore, the "back-to-back" contract clause is neither conditional nor term clause, it is only the agreement of the parties to the contract on the time of payment.

The author agrees with this view. If the "back-to-back" contract terms are understood as the conditional terms and term terms stipulated in Articles 59 and 160 of the Civil Code, then the "back-to-back" contract terms stipulated in the subcontract have not yet taken effect before the attached conditions are fulfilled or the term expires. At this time, the construction enterprise cannot oppose the payment request of the sub-supplier according to the "back-to-back" contract terms, obviously contrary to the original intention of the construction enterprise to enter into "back-to-back" contract terms. "The 'back-to-back' clause, as a clause in the subcontract, is clearly not an 'attached condition' of the subcontract as a whole, and does not affect the validity of the subcontract as a whole, whether or not the owner makes the corresponding payment". Therefore, the "back-to-back" contract clause is neither conditional nor a term clause, it is only the agreement of the parties to the contract to pay, is the construction enterprise in order to reduce or exempt itself from liability for breach of contract to develop a risk-sharing clause.

As for the validity of the "back-to-back" contract terms, currently only the "Beijing Higher People's Court's Answers to Several Difficult Questions about the Trial of Construction Contract Dispute Cases" (Jinggao Fa [2012] No. 245) affirms the validity of the "back-to-back" contract terms. Article 22 of the "Answers" stipulates: "The subcontract stipulates that after the settlement between the general contractor and the employer and the employer pay the project payment, if the general contractor then pays the subcontractor for the work, the agreement is valid. If the subcontractor is unable to obtain the project funds in time due to the delay in settlement or delay in exercising its due claims, the subcontractor shall support the subcontractor's request for the general contractor to pay the outstanding project funds. The general contractor bears the burden of proof for the settlement between it and the contractor and the fact that the contractor has paid for the work". However, there are different views on the validity of "back-to-back" contract clauses in judicial practice.

1, hold the view that its effectiveness is affirmed.

(1) The terms of the "back-to-back" contract are in line with the principle of party autonomy and do not violate the mandatory provisions of the law. The parties enter into a contract with their true intentions, as long as they do not violate the mandatory provisions of laws and regulations and shall be valid. In the case of Dan Min Yi Zhong Zi No. 00442 of the Intermediate People's Court of Dandong City, Liaoning Province (2015), the court held: "The subcontract between the appellant China Metallurgical Geological Exploration Company and the appellee China Metallurgical Shen Exploration Company stipulates that the general contractor will pay the project fund to the subcontractor after the general contractor and the employer have settled the project fund and the employer has paid the project fund. The content of this clause does not violate the mandatory provisions of the law, It is the consensus of both parties' judgment on the risk, according to the agreement made by the well-known industry rules and construction habits of the construction market, this clause reflects the autonomy of the parties, conforms to the principle of voluntary equality in civil law, and should be a valid clause."

(2) In a "buyer's market" environment, the existence of "back-to-back" contract terms is reasonable. In the case of Sanminzhong No. 199 of Sanmenxia Intermediate People's Court (2014) of Henan Province, the court held: "In the current construction market environment where the construction market is in an absolute buyer's market, the owners are large, and the phenomenon of owners defaulting on the project price is becoming more and more common, in order to transfer the risk that the owners cannot pay, construction enterprises set up clauses in subcontracts with' the owner's payment', usually called back clauses, the clause has a certain rationality and legality, so the agreement is valid."

In Beijing Haidian District People's Court (2019) Beijing 0108 Minchu No. 17584 case, the court also held that "Article 6, paragraph 3 of the subcontract involved stipulates that' if the owner unit delays the payment time to Party A, Party A will postpone the payment to Party B '. This agreement is to transfer the risk that the general contractor cannot pay the owner in the current market environment where the construction market is in the buyer's market and the owner defaults on the project payment, however, the clause of' presupposes payment by the owner' is set in the subcontract, which is usually called" back-to-back "clause. This clause has certain rationality and legality, so the agreement is valid. However, if the subcontractor fails to obtain the project payment in time due to the delay in settlement or delay in exercising its due creditor's rights, the subcontractor requires the subcontractor to pay the overdue project payment, it shall be supported."

(3) The terms of the "back-to-back" contract are in line with the trading habits and the principle of good faith and should be considered legal and valid. In the Jinan Intermediate People's Court (2014) Jimin Wuzong Zi No. 182 case, the court held: "The back-to-back clause agreed by both parties reflects from the side that Chongqing Zhixiang Company agrees to Shandong Road and Bridge Company to pay the project payment to Chongqing Zhixiang Company after receiving the project payment from the owner for the subcontracted project. From the perspective of trading habits and the principle of good faith, Shandong Road and Bridge Company applies to the owner for payment of the project funds in accordance with the progress of the project and the quantities completed by each subcontractor. The supervision unit issues the payment certificate after examination. The owner allocates the project funds to Shandong Road and Bridge Company according to the payment certificate, and Shandong Road and Bridge Company pays the project funds to the relevant subcontractors according to the payment certificate."

2. Hold the view that negates its effectiveness

The "back-to-back" contract clause is the practice of the construction enterprise under the "buyer's market" to transfer the risk of the owner's failure to pay to the sub-supplier, in violation of the principle of relativity of the contract, the principle of good faith or the principle of fairness. In the Xinjiang Uygur Autonomous Region Higher People's Court (2020) Xinminzong No. 45 case (in this case, the Supreme People's Court (2021) Supreme Famin Shen No. 4924 ruled to reject the retrial applicant's retrial application), the Xinjiang Higher People's Court held that "according to the principle of contract relativity, whether the Hubei Electric Power Branch of Electric Power Construction Company receives the payment from the owner Jiarun Resources Company according to the Construction Contract of Xinjiang Jiarun Resources Holding Co., Ltd. Phase I Series II 450000-ton/year Electrolytic Aluminum Project (Civil Engineering) and Xinjiang Jiarun Resources Holding Co., Ltd. Phase I Series II 450000-ton/year Electrolytic Aluminum Project (Steel Structure) signed with Jiarun Resources Company will not affect the payment of the Hubei Electric Power Construction Company to the 11th Metallurgical Company, the court of first instance found that the agreement to pay after receiving the owner's payment was unfair and did not support the defense correctly".

1. When the subcontract is invalid, the terms of the "back-to-back" contract are invalid.

The author believes that to confirm the validity of the "back-to-back" contract terms, first of all, it should be based on the "Civil Code", "Construction Law", "The Supreme People's Court's Interpretation (I) on the Application of Legal Issues in the Trial of Construction Contract Disputes" and other laws and regulations. Judge whether the contract between the construction enterprise and the sub-supplier violates the mandatory provisions of validity, and then confirm whether the contract is valid and invalid as a whole, the terms of the "back-to-back" contract are naturally null and void. If the contract between the construction enterprise and the sub-supplier as a whole does not exist in accordance with the law to be confirmed invalid, it is not appropriate to directly deny the validity of the "back-to-back" contract terms, should be combined with the specific case, according to the principle of good faith and fairness to resolve the "back-to-back" contract terms arising from the dispute.

2, when the subcontract is invalid, "back-to-back" contract terms can be applied by reference.

Article 2 of the original "(I) for Judicial Interpretation of Construction Contracts for Construction Projects" states that "the construction contract for a construction project is invalid, but the construction project has passed the completion acceptance, and the contractor's request to pay the project price with reference to the contract agreement shall be supported" was integrated and absorbed by Article 793 of the Civil Code. Article 793 of the Civil Code stipulates that "the construction contract for a construction project is invalid, but the construction project has passed the acceptance, the contractor can be compensated by reference to the contract's agreed discount on the price of the project", thus determining the judicial rule of "compensation by reference to invalid contract discount. However, in judicial practice, when the subcontract is invalid, there are different views on whether the "back-to-back" contract terms can be applied by reference.

(1) The view was expressed that the terms of the back-to-back contract could be applied by reference. In the case of No. 236 Minchu of E 0107, Qingshan District People's Court of Wuhan City, Hubei Province (2016), the court held: "'Reference to contract' should refer to all clauses related to the payment of project funds." (The judgment was revised by the Wuhan Intermediate People's Court in the second instance) Some scholars also believe that "according to the purpose of this article, respecting the calculation method, payment method and payment period of the project price agreed by the parties, and then resolving the dispute over the project payment in the case of invalid contract, the 'back-to-back' clause can also be incorporated into the provisions of this article."

(2) It is also argued that back-to-back "contract terms cannot be applied by reference. In the Supreme People's Court (2019) Supreme Law No. 1852 case, the court held that: "The Construction Contract signed by the two parties is an invalid contract, and therefore, the terms of the contract involved in the case on synchronous settlement and payment are also invalid. The" contractual agreement "in Article 2 of the" Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Disputes over Construction Contracts for Construction Projects "mainly refers to the project payment pricing method, pricing standard and other agreements related to the amount of the project price. The agreement on the payment conditions of the project price does not belong to the applicable contract agreement. The court of first instance, in accordance with the provisions of Article 18 of the" Interpretation of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes ", determined that the interest on the outstanding project funds should be calculated and paid from the date of delivery of the project involved, and there is nothing improper".

The author thinks that when the subcontract is invalid, the "back-to-back" contract terms cannot be applied by reference. Article 2 of the original "(I) for the Judicial Interpretation of Construction Contracts" and Article 793 of the Civil Code established the judicial adjudication rule of "compensation for discount with reference to invalid contracts" instead of the principle of "compensation for discount with reference to payment method", and "compensation for discount with reference to the contract on project price" mainly refers to the agreement related to the amount of project price, such as the pricing method and standard of project payment, the "back-to-back" contract clause is not an agreement on "pricing method, pricing standard", so the author believes that if the subcontract is found to be invalid, the "back-to-back clause" is of course invalid and cannot be applied by reference.

Article 7 of the Civil Code stipulates the principle of good faith: "Civil subjects engaged in civil activities shall follow the principle of good faith, uphold honesty and abide by their commitments".

The principle of good faith is mainly manifested in the following aspects: 1. Civil subjects should be honest when carrying out civil activities with others, truthfully inform the relevant information of the transaction party, and do not resort to fraud; 2. After establishing a civil legal relationship with others, civil subjects should keep their promises and credit, exercise their rights and obligations according to their own commitments, and keep their promises; 3. Civil subjects should follow the principle of good faith, cooperate with each other to protect each other's reasonable expectations and trust.

The principle of good faith has the following functions: 1. The function of filling loopholes in laws and contracts. When the principle of good faith is applied in judicial practice, it can be applied only when the law does not clearly stipulate a certain code of conduct, which is determined by the function of the principle of good faith to supplement the law and contract loopholes. 2, establish the function of the rules of conduct, integrity originally belongs to a kind of inner morality, the law will determine integrity as the basic principle, guide the civil activities of civil subjects, so that the principle of good faith has a certain force. 3, the function of equity. Civil subjects uphold the principle of good faith in civil activities, which is conducive to the balance of interests between the parties. 4. Function of interpretation. When the contract agreement is not clear and the legal provisions are not clear, it can be correctly interpreted according to the principle of good faith, giving the judge discretion.

Article 6 of the Civil Code stipulates the principle of fairness: "When a civil subject engages in civil activities, it shall follow the principle of fairness and reasonably determine the rights and obligations of the parties".

1. The application of the principle of fairness is limited: First, the rights and obligations between the parties are unreasonable. If the rights and obligations reached before are agreed, it will lead to substantial unfair results, and even cause the other party to live and operate. In trouble, the principle of fairness can be applied to adjust. The second is that the meaning of the parties is actually untrue or not free, such as the party taking advantage of the danger to force the other party to sign a contract that is not conducive to the other party. 2. The principle of fairness is different from fair responsibility. The principle of fairness is the basic criterion of civil behavior, and the connotation of fair liability is completely different from that of civil liability. 3. The principle of fairness is the basic criterion for adjudication that the people's courts should abide by in the trial of civil disputes.

The "back-to-back" contract terms have their rationality, in the absence of laws and regulations to clarify its invalidity should not directly deny the validity of the "back-to-back" contract terms, should be combined with the specific case, according to the principle of good faith and fairness to resolve the "back-to-back" contract terms caused by the dispute. The author thinks that we should judge whether the "back-to-back" contract terms conform to the principle of good faith and fairness from the following aspects.

1. Whether the construction enterprise fulfills the obligation of notification of the contract in an express or other reasonably appropriate manner.

When concluding a contract with the sub-supplier, the construction enterprise shall clearly inform the sub-supplier of the specific contents of the "back-to-back" contract terms, including the payment method, payment time point and owner's payment of the general contract. When the sub-contract is not clear about this agreement or has different understanding of the agreement, the interpretation principle in favor of the sub-supplier shall be adopted. If the obligation of notification affects the agreement of the "back-to-to-to-back" contract terms, the construction enterprise shall bear the adverse consequences.

For example, in the case of (2021) Jing 03 Min Zhong No. 7492 and (2008) Zhejiang Min Yi Zhong Zi No. 192 described above, the subcontracts all have different degrees of unclear agreement, that is, they belong to the performance of the construction enterprise's failure to perform the obligation of contractual notification in an express or other reasonable and appropriate manner.

2. Whether the construction enterprise fulfills the obligation of performance notification in an express or other reasonable and appropriate manner.

The "Construction Professional Subcontract (Model Text)" (GF- 2003-0213)5.3 stipulates that "the subcontractor shall obey the instructions of the contractor or engineer forwarded by the contractor in connection with the subcontracted works. Without the permission of the contractor, the subcontractor shall not have direct working contact with the contractor or engineer for any reason, and the subcontractor shall not write directly to the contractor or engineer, nor shall he directly accept the instructions of the contractor or engineer. If the subcontractor has direct working contact with the contractor or engineer, it will be considered a breach of contract and will be liable for breach of contract." Article 13 of the (I) of Interpretation of the Supreme People's Court on the Application of Law in the Trial of Disputes over Construction Contracts stipulates that "the contractor shall be liable for fault if it has one of the following circumstances, resulting in defects in the quality of the construction project: ...... directly designates a subcontractor to subcontract the professional project." According to the above provisions, without the permission of the construction enterprise, the sub-provider and the owner can not directly contact. There is a direct legal relationship between the construction enterprise and the owner, relative to the sub-supplier, the construction enterprise can directly prevent the occurrence of risk, and in terms of professional ability, the construction enterprise risk prevention ability is relatively strong, so the construction enterprise should timely inform the sub-supplier in the process of performance of the project payment. Specifically, the construction enterprise shall promptly inform the sub-supplier of the progress payment, settlement payment and disputes with the owner in the course of performance.

3, whether the construction enterprise to fulfill the duty of care.

It mainly includes:(1) the obligation to carefully select the owner. The construction enterprise transfers the risk paid by the owner to the sub-supplier through the "back-to-back" contract terms. The main risk comes from the reliability of the owner's investment. Therefore, the construction enterprise should conduct a practical and effective investigation and evaluation of the owner's credit, including but not limited to the owner's tax situation, guarantee situation, litigation situation and so on. If there is an obvious fault in the choice of the owner of the construction enterprise, the construction enterprise itself should bear the risk and cannot require the sub-supplier to share the risk with it. (2) is to actively perform the obligations of the contract, the construction enterprise due to their own fault caused the owner to refuse to pay or delay the payment of the project, can not be based on the "back-to-back" contract terms against the sub-supplier's right to pay. (3) is the obligation to actively claim rights, construction enterprises should actively resolve disputes with owners through various means, otherwise they can not be based on the "back-to-back" contract terms against the sub-supplier's right to pay. In the Supreme People's Court (2020) Supreme People's Court No. 106 case, the court held that: "...... the exemption of the First Bureau of China Construction should be based on the premise of its normal performance of the obligations of assisting in acceptance, assisting in settlement, assisting in collection, etc., as the obligor of collection of the construction project funds of Dadong, the First Bureau of China Construction did not provide effective evidence to prove that it was sealed to confirm the completion of the project involved in this case and before the litigation, has actively fulfilled the above obligations, the construction of Dadong to urge acceptance, audit, settlement, collection and so on. On the contrary, the testimony of Fang Mou, a staff member of China Construction First Bureau, confirmed that China Construction First Bureau was negligent in fulfilling its duties, refused the request of Qiyue Company, and never actively claimed its rights to Dadong Construction, ...... Therefore, China Construction First Bureau's claim that the" back-to-back "condition was not achieved and China Construction First Bureau was not obligated to pay was not justified enough".

4, the principle of protection of the time interests of sub-suppliers.

The particularity such as long duration and complexity of the construction project leads to the attached conditions that may not be achieved in a short time or never. In order to avoid the sub-supplier falling into the long waiting period of the owner's payment, the author thinks that the principle of time benefit protection for the sub-supplier should be established. When the sub-supplier has completed the sub-supplier's obligations according to the contract and quality standard requirements, and the project is delivered and the failure to pay is not the fault of the fault of the sub-supplier, even if the terms of the "back-to-back" contract have not yet been fulfilled, the sub-supplier should be allowed to break through the terms of the "back-to-back" contract and the construction enterprise should pay the sub-supplier. In the case of Qingdao Intermediate People's Court (2019) Lu 02 Minzong No. 8059, the court held: "Although the contract between the two parties has agreed on the'back-to-back' clause, the project involved has already been delivered and the owner has entered bankruptcy procedures, and whether the owner can be timely, Under the circumstances of great uncertainty in paying the plaintiff's project funds in full, based on the principles of fairness and good faith, the defendant shall pay the plaintiff the remaining project funds." In addition, in Jinan Arbitration Commission (2022) Ji Arbitration Zi No. X case, the arbitration tribunal held that "whether the owner completes the audit, whether to pay and when to pay the respondent does not depend on the applicant and the respondent, but mainly on the third party other than the project subcontract involved in the case, that is, the owner. Even if the owner actually pays the project fund to the respondent, the applicant may not be aware of it and cannot claim the rights in time; the project contract involved in the case stipulates the payment obligation of the third party (I. e. the owner) outside the contract, but it cannot restrict the payment behavior of the third party (I. e. the owner). If the owner goes bankrupt or the respondent gives up or concessions the creditor's rights, the owner may never pay the project fund to the respondent, so this back-to-back clause will never be achieved. Therefore, the above-mentioned contract agreement cannot constitute" conditional "payment performance to the applicant. Based on the principle of fairness, the applicant can require the respondent to pay the project arrears within a reasonable period of time. XX project has passed the project acceptance on x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, x, it should be supported."

1, for "back-to-back" payment contract terms.

Supreme People's Court (2020) Supreme Fa Minzhong 106 case, the subcontract stipulates that "60% of the subcontract project completion settlement amount shall be paid within 45 days after the completion settlement and the final audit entrusted by the Employer is qualified (and the Contractor has received the corresponding project payment from the Employer for 15 working days)... If the Contractor fails to pay the project payment to the subcontractor within the time stipulated in the contract due to the failure of the construction unit (the Employer) to pay the project payment to the Contractor on time, it shall not be deemed as a breach of contract".

In this case, the court of first instance held: "(1) the subcontract and supplementary agreement signed by the construction enterprise and the sub-supplier in this case are the true intention of both parties, and the content does not violate the mandatory provisions of laws and regulations, and is legal and effective. (2) Although Article 9.1 of the Subcontract stipulates that" 60% of the completion settlement amount of the subcontract project shall be paid within 45 days after the completion settlement and the final audit entrusted by the employer is qualified ", since the subcontract involved in the case does not clearly stipulate that it is government audit, both parties to the contract are equal civil legal subjects, and the project involved in the case has been completed and accepted, and used by the owner so far, its cost has been entrusted by the court of professional appraisal institutions to make cost appraisal conclusions, in this case, if again on the grounds of unsettled audit refused to pay the project arrears, both not conducive to the settlement of disputes, but also unfair. The law stipulates that audit institutions shall audit and supervise the budget implementation and final accounts of government investment and construction projects dominated by government investment, with the purpose of maintaining the national financial and economic order, improving the efficiency of the use of financial funds, and preventing irregularities in construction projects. The above-mentioned contents of the contract involved in the case are actually to ensure that the final settlement price of the project must go through professional examination channels or methods to determine the authenticity and rationality of the settlement project funds, therefore, the appraisal opinion of the appraisal institution should be used as the basis for determining the cost of the project. (3) Combined with the evidence and witness testimony, although the construction enterprise in this case did not receive the project payment from the owner, it should be supported by the sub-supplier to claim the corresponding project payment from the owner because of its delay in claiming rights from the owner."

The court of second instance held that: "the exemption of" the owner does not have the obligation to pay if the owner fails to pay the project payment "put forward by the construction enterprise in this case should be based on its normal performance of its obligations such as assisting in acceptance, assisting in settlement and assisting in collection of payment. as the collection obligor of the project payment, it has not provided effective evidence to prove that it has actively fulfilled the above obligations. The testimony of the staff of the construction enterprise in this case confirmed that they were subjectively negligent in performing their duties, refused the sub-supplier's request, and never actively claimed their rights to the owner. Therefore, in this case, the conditions for the construction enterprise to pay the sub-supplier for the project have been fulfilled."

The author thinks: first of all, there is no law, regulations in this case, the contract is invalid, or revoked, so it is not appropriate to directly deny the validity of the "back-to-back" contract terms. Secondly, the "government audit" method is not clearly stipulated in the subcontract involved in the case. Both parties in the contract are equal subjects of civil legal relationship, and the project involved in the case has been completed and accepted and used by the owner. The cost has been determined by the professional appraisal institution entrusted by the court. In this case, the construction enterprise refuses to pay the project arrears on the grounds of unsettled audit, it violates the principle of good faith and fairness. Thirdly, the construction enterprise in this case did not normally perform its obligations such as assisting in acceptance, settlement and collection of funds, and was lazy in claiming rights to the owner, which violated the principle of good faith and fairness. At the same time, it did not conform to the principle of protecting the interests of the sub-supplier's time. The sub-supplier should support its claim for the corresponding project funds.

2, for the "back-to-back" settlement contract terms.

The subcontract in the case of Zhejiang Higher People's Court (2008) Zhejiang Min Yi Zhong Zi No. 192 stipulates that "the settlement and payment method of the project shall be determined by the unit price, and the settlement shall be based on the actual calculation; However, the subcontract also stipulates that the relevant settlement shall be subject to the terms of the contract and settlement basis signed between Party A and Party C (the owner's unit)".

In this case, the sub-supplier believes that the project settlement should be based on the unit price agreed in the contract between the two parties and the actual amount of work completed by the sub-supplier. At the same time, according to the sub-supplier application court commissioned a professional appraisal institution to make the cost of the appraisal conclusion.

In this case, the construction enterprise believes that, first of all, the relevant settlement shall be subject to the terms of the contract signed with the owner and the settlement basis. If the actual settlement project cost is lower than the settlement cost between it and the owner, both parties shall settle according to the actual settlement; If the actual settlement project cost is higher than the settlement cost between it and the owner, the settlement cost between both parties shall be subject to the settlement cost between it and the owner. Secondly, the subcontract does not specify the specific payment time, but the settlement of the project price should be based on its settlement with the owner, therefore, the project price payment time should be after its settlement with the owner.

In this case, the court of first and second instance held that: first of all, from the content of the terms of the contract, both parties have made a clear agreement on the settlement unit price of the project involved in the case, the basis of settlement pricing, the adjustment of material information price, and the floating of the total settlement price of the project, which should be used as the basis for the settlement of the project cost by both parties. Although both parties agree in this clause that "the relevant settlement shall be subject to the contract terms and settlement basis signed by Party A and Party C", this content cannot overturn the agreement made by both parties on the unit price of project settlement, nor can it be confirmed that the project settlement of both parties shall be subject to the settlement cost between the construction enterprise and the owner. Secondly, the project involved in the case has passed the completion acceptance and has been actually delivered, the parties should settle the cost of the project and pay the project price. Although the subcontract does not specify the payment time for the project, according to the relevant provisions of the Contract Law, if the parties to the contract do not explicitly agree on the payment time or the agreement is unclear, the construction party shall have the right to demand payment of the project price within a reasonable period of time after the completion and acceptance of the project.

The author thinks: first of all, the subcontract involved in the case stipulates that the project settlement is "the unit price is determined and the settlement shall be calculated according to the actual situation", but the subcontract also stipulates that "the relevant settlement shall be subject to the contract terms and settlement basis signed by party a and party c (the owner unit)". such an agreement itself is in conflict, and the construction enterprise in this case failed to fulfill its reasonable obligation of performance notification, when the resulting agreement is unclear or has a different understanding of the agreement, the principle of good faith and fairness shall be followed to make an interpretation and determination in favor of the sub-supplier. Secondly, the construction enterprise in this case put forward in the court trial that "if the actual settlement of the project cost is lower than the settlement cost between the construction enterprise and the owner, both parties should settle according to the actual settlement, if the actual settlement of the project cost is higher than the settlement cost between the construction enterprise and the owner, the settlement of both parties should be based on the settlement cost between the construction enterprise and the owner, obviously, it is a self-interested explanation for abusing its dominant position in the market, which seriously violates the principle of good faith and fairness. In addition, the subcontract in this case does not explicitly agree that "the owner's payment to the construction enterprise is the condition for the construction enterprise to pay the sub-supplier", from the principle of autonomy of the parties, the principle of good faith and the principle of fairness, can not require the sub-supplier and the construction enterprise to jointly bear the risk of "owner payment.

3, for the "back-to-back" contract terms "agreement is unclear" situation.

Beijing No. 3 Intermediate People's Court (2021) Beijing 03 Minzhong No. 7492 case in the subcontract agreed that "the contract between Party A and Hesheng Company shall be attached to the contract (the payment method shall be paid according to the back-to-back payment method between Party A and Hesheng Contract)".

The construction enterprise in this case believes that the two parties clearly agreed in the contract "back-to-back" contract payment, and now the evidence issued by Party A proves that the project payment has not been paid for quality reasons.

The court held that, first of all, although the two parties agreed to use back-to-back payment in the contract, because the agreement obviously violated the principle of relativity of the contract and lacked specific agreement on the back-to-back method, it should be determined that the two parties to the contract did not know the payment method. In addition, because the project involved in the case had been accepted and put into use many years ago, the sub-vendor filed the lawsuit after the warranty period of the project involved, in this case, the construction enterprise also failed to submit sufficient evidence to prove that it had raised quality problems with the sub-supplier during the warranty period of the project in question, which should be regarded as the quality of the project in question installed by the sub-supplier and the payment terms have been achieved.

The author thinks: first of all, the construction enterprise should clearly inform the sub-supplier of the specific contents of the "back-to-back" contract terms when concluding the contract with the sub-supplier, including the specific contents such as the price payment method, the payment time node and the owner's payment of the general contract. Although the two parties signed the contract in this case agreed to adopt the "back-to-back payment method", there was no specific agreement on the "back-to the back" back "back" contract terms, the construction enterprise has not fulfilled its reasonable obligation to inform the contract, so it should be considered that the parties to the contract are not clear about the payment method. Secondly, whether and when the owner pays does not depend on the construction enterprise and the sub-supplier, but mainly on the third party other than the subcontract involved in the case, that is, the owner. However, the subcontract cannot restrict the payment behavior of the third party (that is, the owner). Based on the principle of contract relativity, the "back-to-back" contract terms agreed by the construction enterprise cannot be established. In addition, based on the principle of fairness and the principle of protecting the interests of the sub-supplier's time, since the project involved in the case was accepted and put into use many years ago, the sub-supplier filed the lawsuit in this case only after the warranty period of the project involved was exceeded. The quality of the project involved installed by the sub-supplier was qualified, and the sub-supplier requested the construction enterprise in this case to pay the project arrears, which should be supported. Finally, the construction enterprise in this case claimed that "the evidence issued by the owner proves that the project payment was not paid due to quality reasons", but failed to submit sufficient evidence to prove that it had raised quality problems with the sub-supplier during the warranty period of the project involved, and could not prove that the project quality problems were caused by the sub-contractor. It opposed the sub-supplier's right to claim for payment on the grounds that the quality of the project involved installed by the sub-supplier was not qualified, and the sub-supplier was insufficient evidence.

1. Suggestions for construction enterprises

(1) Ensure that the contract signed with the sub-supplier is valid.

The author believes that to confirm whether the "back-to-back" contract clauses are valid, it should first be determined in accordance with the "Civil Code", "Construction Law" and "Interpretation (I) of the Supreme People's Court on the Application of Legal Issues in the Trial of Construction Contract Disputes". If the contract signed with the sub-supplier is confirmed to be invalid in accordance with the law, the "back-to-back" contract clauses are naturally invalid.

(2) The terms of the "back-to-back" contract shall be clearly and specifically operable.

The purpose of the "back-to-back" clause by the construction enterprise is to transfer the risk that the owner will not pay the project price in time or even pay, but the construction enterprise cannot delay the payment period, otherwise the clause may violate the principle of good faith and fairness, and thus not be supported by the court. Therefore, the terms of the "back-to-back" contract should be detailed and operable on the time and form of payment, so as not to be supported by the court because the agreement is illogical or too general and vague. In practice, the payment time, node, proportion and other contents of the total package contract can be specifically and clearly agreed in the subcontract. The owner, construction enterprise and sub-supplier between the payment time, node, etc. one-to-one correspondence, if the owner refuses to pay or delays the payment of the project, the construction enterprise can invoke the corresponding "back-to-back" clause to make a more effective defense.

(3) The construction enterprise shall perform the obligation to inform by express or other reasonable and appropriate means.

When a construction enterprise enters into a contract with a sub-supplier, it shall clearly inform the sub-supplier of its rights and obligations with the owner, including the payment method of the general contract, the time point of payment and the specific content of the owner's payment, etc. When the sub-contract is unclear about this agreement or has different understanding of the agreement, the construction enterprise shall bear adverse consequences. For example, the subcontractor can be specially reminded to pay attention to the corresponding content by bolding the font of "back-to-back" contract terms.

(4) Construction enterprises should do their duty to carefully select owners.

If there is an obvious fault in the choice of the owner of the construction enterprise, the construction enterprise itself should bear the risk and cannot require the sub-supplier to share the risk with it. The construction enterprise shall examine the reliability of the owner and conduct an effective investigation and assessment of the owner's creditworthiness, including but not limited to the owner's tax situation, guarantee situation, litigation situation, etc., so as to avoid the application of the "back-to-back" contract terms resulting in the common damage to the rights and interests of the construction enterprise and the subcontractor.

(5) Actively perform the contract to avoid the owner's refusal or delay in payment of the works due to his own fault.

Construction enterprises should actively claim their rights to the owners and keep the relevant evidence. Referring to Article 22 of the Beijing Higher People's Court's Answers to Several Difficult Questions in the Trial of Construction Contract Disputes and the view of judicial practice, the construction enterprise bears the burden of proof for the settlement between it and the owner and the fact that the contractor has paid the project. Construction enterprises should actively settle with the owners when the relevant conditions are achieved, and in the event of overdue payment by the owners, they should promptly claim their rights to the owners by means of reminders, letters, lawsuits and arbitration, and retain relevant evidence.

(6) Actively collect and preserve evidence of breach of contract by the counterpart of the contract.

If the completion of the project is delayed and the payment is delayed by the owner due to the sub-supplier, the sub-supplier shall bear the corresponding liability for breach of contract, and the construction enterprise shall actively collect and preserve the evidence of breach of contract such as the delay of the construction period of the sub-supplier and the defect of the project quality, so that the construction enterprise can invoke the corresponding "back-to-back" contract terms to counter the payment claim of the sub-supplier more fully and effectively.

2. Recommendations for sub-suppliers

(1) According to the Civil Code, the Construction Law and the (I) of the Supreme People's Court on the Interpretation of the Law Applicable to the Trial of Construction Contract Disputes, if the contract of the sub-supplier is invalid, the sub-supplier may claim that the corresponding "back-to-back" contract terms are invalid.

If there are situations such as not obtaining the qualification of construction enterprise or exceeding the qualification level, the actual builder without qualification borrows the name of a qualified construction enterprise, the construction project must be tendered but not tendered or the winning bid is invalid, and the construction project construction contract signed by the construction enterprise with others due to subcontracting or illegal subcontracting of the construction project should be deemed invalid, the sub-supplier can claim that the subcontract is invalid, this negates the validity of the terms of the "back-to-back" contract and requires the construction enterprise to settle the project according to the facts.

(2) Try to avoid agreeing on "back-to-back" contract terms, or attaching applicable conditions to "back-to-back" contract terms, termination conditions, or agreeing on the latest payment period of the construction enterprise.

The construction market is still a "buyer's market", and the sub-suppliers are relatively weak, but the sub-suppliers should still actively negotiate and try to avoid agreeing on "back-to-back" contract terms. "However, it must be admitted that in practice, the general contractor is often in an advantageous position in the process of contract conclusion. The subcontractor does not have much say in the setting of contract terms. In most cases, it can only be accepted passively. Therefore, it does not seem to have practical effect to require the subcontractor to refuse to write the'back-to-back' clause into the contract". Even so, it should be agreed as far as possible to limit the applicable conditions of the "back-to-back" contract terms, the conditions of termination or the latest payment period of the construction enterprise. For example, it is agreed that the construction enterprise shall inform the sub-supplier in writing within x days after receiving the project payment from the owner each time, otherwise it shall be deemed that the construction enterprise has given up the agreement of "back-to-back" contract terms, etc. The overall arrangement of the general contract payment shall be clearly stipulated in the subcontract; It is agreed that the construction enterprise shall pay the project payment to the sub-supplier after the project has passed the completion acceptance, the warranty period or a specific time, exclude the application of "back-to-back" contract terms.

(3) Strengthen compliance management and retain good evidence.

First of all, strengthen their own performance management, to ensure that the progress of the construction period is not delayed, to ensure that the project completion acceptance is qualified, to avoid the sub-supplier's own reasons lead to the delay of the construction period, the project quality is not qualified, pay attention to the preservation of the sub-supplier's payment application, completion acceptance application, acceptance records and other written evidence. In addition, keep the written documents that the construction enterprise informs the sub-supplier that the owner has received the project payment (if the construction enterprise fails to fulfill the notification obligation, it should send a letter to the construction enterprise to confirm the fact that the owner has completed the settlement and paid the project payment, and require the construction enterprise to pay the project payment to the sub-supplier in time), and check whether the payment progress of the owner and the construction enterprise is consistent with the progress of the construction enterprise paying to the sub-supplier, if there is an inconsistency, the court may find that the construction company is in default, or even expected to default, by failing to pay the works in a timely manner. According to Article 588 of the Civil Code, if one of the parties expressly indicates or indicates by its own conduct that it will not perform its contractual obligations, the other party may request it to bear the liability for breach of contract before the expiration of the performance period. Therefore, if the construction enterprise constitutes an expected breach of contract under article 588 of the Civil Code, the sub-supplier may require the construction enterprise to pay for the work, even if the agreed payment terms are not fulfilled.

(4) Collect evidence that construction enterprises are lazy in exercising their claims, and actively claim their rights to construction enterprises through litigation, arbitration and other means.

In the face of construction enterprises using "back-to-back" clauses and maliciously defaulting on subcontracted project funds, sub-suppliers should do a good job in evidence preservation and actively claim rights from construction enterprises through litigation, arbitration and other means. On the one hand, they should strictly enforce the burden of proof of construction enterprises and preserve evidence of breach of contract by construction enterprises. On the other hand, they advocate that construction enterprises abuse their dominant position, violate the principle of contract relativity, violate the principle, good faith principle and fairness principle, require confirmation of the invalidity of the terms of the "back-to-back" contract in order to resolve the dispute arising from the terms of the "back-to-back" contract.