Real estate perspective... How to determine the substantive change of the content of the construction contract in practice?

Published:

2022-10-08

In the construction project has not yet begun, the contractor in order to obtain construction opportunities, may sign a construction contract with the contractor in addition to the winning contract, by reducing the price of the project, change the payment method, shorten the duration and other acts to ensure their competitive advantage. This leads to the fact that in practice, there are often one or more contracts between the contractor and the contractor for the construction project in addition to the winning contract, I .e., "black and white contracts". Under the premise of the validity of the winning contract, under what circumstances will the content of the non-winning contract and the different part of the winning contract be deemed as substantive change and invalid? Although there are relevant laws and regulations in practice, there are still many disputes to be clarified. 1. legal provisions on the substantive content of contracts Article 57, paragraph 1, of the Regulations for the Implementation of the Law on Tendering and Bidding stipulates: "The tenderer and the winning bidder shall sign a written contract in accordance with the provisions of the Law on Tendering and Bidding and these Regulations, and the main terms of the contract, such as the subject matter, price, quality and time limit for performance, shall be consistent with the contents of the tender documents and the winning bidder's tender documents. The tenderer and the winning bidder shall not enter into any other agreement shall not enter into any other agreement." From the contents of the legal provisions stipulated in Article 57, paragraph 1, of the Regulations on the Implementation of the Bidding Law, it can be seen that the substantive content shall refer to the main provisions of the contract, such as the subject matter, price, quality and time limit for performance. Paragraph 1 of Article 2 of the Interpretation (I) of the Supreme People's Court on the Application of Law in the Trial of Disputes over Construction Contracts (hereinafter referred to as the (I) of Judicial Interpretation of Construction Projects) stipulates that the substantive contents of the construction contract separately signed by the tenderer and the winning bidder, such as the scope of the project, construction period, project quality and project price, are inconsistent with the winning contract, and one party requests to determine its rights and obligations in accordance with the winning contract, the people's court should support it. Paragraph 2 stipulates that in addition to the winning contract, the tenderee and the winning bidder shall sign a separate contract for the purchase of the contracted property at a price significantly higher than the market price, the construction of housing supporting facilities free of charge, the transfer of profits, and the donation of property to the construction unit, so as to reduce the project price in a disguised form. If one party requests that the contract deviates from the substantive content of the winning contract, the people's court shall support. As can be seen from paragraph 1 of the provision, the substantive content includes the scope of the project, the construction period, the quality of the project, the price of the project, etc. Paragraph 2 provides for more detailed provisions on changes in the price of the project to prevent disguised reductions in the price of the project through other means. 2. typical cases The current laws and regulations and judicial interpretation of the substantive change has been more clearly defined, but in practice, due to the "black and white contract" of the phenomenon of widespread, the contract content of the change is also a wide variety of ways. Therefore, how to determine whether it is a substantive change must not only stand on the basis of legal provisions, but also combine relevant precedents in practice. 1.(2019) Lu 01 Min Zhong No. 3547 In this case, the court of first instance held that "the project payment and payment schedule and standards have changed with the filing contract. The total price of the filing contract is 3.4 million yuan, while the total price of the contract project is more than 4.17 million yuan after the contract change signed separately by both parties is increased, and the progress of the payment project is quite different from that of the filing contract. At the same time, due to the signing of the supplementary agreement, the quantity and duration of the project involved have also changed. According to Article 46 of the Bidding Law, the tenderer and the winning bidder shall enter into a written contract in accordance with the bidding documents and the bid documents of the winning bidder, and shall not enter into any other agreement that deviates from the substantive content of the contract. Accordingly, the" Construction Project Construction Contract "and" Supplementary Agreement "signed by the plaintiff and the defendant violated the mandatory provisions of laws and regulations and were invalid." The court of second instance held that "the construction project construction contract and supplementary agreement signed by the research institute of traditional Chinese medicine and Haidong lantao company involved in the case have undergone substantial changes to the above-mentioned government procurement contract due to the agreed project price, payment schedule and standard, and the construction project construction contract and supplementary agreement have not reorganized the bidding procedures, on this basis, the court of first instance found that the" construction contract "and" supplementary agreement "signed by both parties were invalid because they violated the mandatory provisions of laws and administrative regulations, which were based on the law, and the court confirmed this." In this case, the contract price was changed from 3.4 million yuan to 4.17 million yuan, and the payment schedule and standard were significantly changed. Finally, the court found that the change was the substantive content of the contract, resulting in the invalidity of the contract. 2.(2019) Supreme Law Minzong No. 1093 In the first instance, none of the parties raised any objection to the validity of the "General Contract Supplementary Agreement" involved in the case. Therefore, the first instance did not regard this as the focus of the dispute. In the second instance, Nantong Second Construction claimed that the "General Package Supplementary Agreement" was invalid, and the real estate company should pay the project advance payment and progress payment to it in accordance with the agreement of the winning "Construction Contract. In this regard, the Court believes that the "General Package Supplementary Agreement" and the winning "Construction Contract" compared to the project payment method from the advance payment plus progress payment to the contractor full advance construction. The payment method is an important part of the project price, therefore, it should be determined that the "General Package Supplementary Agreement" constitutes a substantial change to the winning contract, according to the provisions of Article 46 of the the People's Republic of China Law on Tendering and Bidding, the agreement is invalid and not legally binding on both parties. Similar cases include (2018) Supreme Law Minzong No. 69. In this case, the court of first instance found the following facts: after the company and Jinsha County Education Bureau signed the "Investment and Construction Contract" according to the bidding documents and the winning bidder's bidding documents, they signed the "Supplementary Agreement" on December 25, 2012, changing the "payment method for project repurchase payment" from BT mode to "payment according to Party B's construction progress". The court of first instance held that the BT model is the process of general contracting through the project company, transferring financing and construction to the owner, and the owner paying the total project investment plus a reasonable return to the investor. One of the core elements of the BT model is that the contractor has a financing obligation. The "Supplementary Agreement" has modified the core content of the BT Agreement, which belongs to the situation of "other agreements concluded by the tenderer and the winning bidder that deviate from the substantive content of the contract" stipulated in the "the People's Republic of China Tendering and Bidding Law. The court of second instance confirmed this. From the above cases, it can be seen that a material change in the method of payment for the works would also be deemed to constitute a material change to the winning contract. 3.(2018) Supreme Fa Min Shen No. 1235 In this case, according to the bidding documents, the two parties signed the "Construction Project Construction Contract" for the 5# and 6# buildings on August 24, 2009 and filed it with the construction authority, and signed two more "Construction Project Construction Contract Supplementary Agreements" for the 5# and 6# buildings respectively. The project price pricing standard, contract duration, liability for breach of contract and other contents agreed in the two supplementary agreements are inconsistent with the provisions of the construction project construction contract for filing, which is a change to the substantive content of the bid-winning contract for filing, in violation of the aforementioned mandatory provisions. the second-instance judgment found that the changes in the substantive terms of the two supplementary agreements were invalid and the applicable law was correct. Article 30 of the the People's Republic of China Contract Law provides that changes in the subject matter of the contract, quantity, quality, price or remuneration, time limit for performance, place and manner of performance, liability for breach of contract and method of dispute resolution are material changes to the content of the offer. Yuhua claims that the breach clause is not a statutory substantive clause, even if it is inconsistent with the tender documents, it is valid and lacks legal basis. In this case, the Supreme Court also identified the liability for breach of contract and the method of resolving disputes as a material change. 4.(2022) Supreme Fa Min Shen No. 262 In this case, the employer and the contractor have signed a series of supplementary agreements and supplementary contracts according to the changes in the construction situation of the project involved in the case. For example, the "Supplementary Agreement" on June 30, 2014 is an agreement between the two parties on losses such as suspension of work and subsequent construction matters, supplementary Contract 2 to Supplementary Contract 8 and Project Settlement Agreement of Xinghai Harmony World Area 1 and Area 2 are further supplementary agreements made by both parties on specific matters such as newly added house type renovation project, completed project content and settlement price, determination method of project cost of unconstructed part, construction period, project payment, liability for breach of contract, completion, project settlement, etc, the above agreements are the true intentions of both parties in the course of the performance of the construction contract due to changes in objective circumstances, and do not affect whether other bidders can win the bid or the conditions under which they will win the bid. The signing of the above-mentioned agreement does not violate the bidding system, resulting in an imbalance of rights and obligations between the contractor and the contractor, and does not constitute a substantive change to the Construction Contract. The second-instance judgment found that the above-mentioned supplementary agreement and supplementary contract were made due to changes in the construction of the project and actual needs, and were the constituent documents of the construction contract involved in the case, and there was nothing improper. Huiyuan Company advocates that the supplementary contract changes the substantive content of the "Construction Contract", and the "Construction Contract" is a "black and white contract" relationship, can not be established, the hospital will not support. In this case, although the subsequent supplementary agreement changed the duration, payment method, and liability for breach of contract, the court did not find it to be a substantive change. 3. comprehensive analysis What was found to be a material change in the above-mentioned cases was not directly provided for in the legal provisions, and the grounds for the court's determination of a material change in the first three cases included the progress of payment, the standard of payment, the method of payment, the liability for breach of contract, and the method of dispute resolution. In the fourth case, there are also changes to the above contents, but they are not considered as substantive changes. Thus, not all changes in the content of the contract should be considered as material changes. In fact, from the perspective of legal provisions, some contents are not clearly reflected, but their essence also belongs to the category of substantive changes, or although they are stipulated in the legal provisions to belong to the category of substantive changes, their reasonable changes will not be recognized as substantive changes by the court. In judicial practice, the judge's discretion is also extremely important when determining the scope and extent of deviation from the substantive content of the contract. From the perspective of project quality, if the employer requires to improve the project quality standard or safe construction requirements after the contract is signed, the project price will be increased accordingly. Similarly, the employer requires to reduce the project quality standard and the project price will be reduced accordingly. At this time, the supplementary contract signed by changing the contract price shall be a valid contract. However, if the contractor requires the contractor to significantly reduce the project price when the project quality standards are not adjusted or fine-tuned, the supplementary contract signed by both parties to change the contract price is likely to be considered as a material change and the contract will be invalid. Similarly, the same is true for the adjustment of the speed of the construction period, the change of the payment method of the project, and the change of the terms of liability for breach of contract. Therefore, for the determination of substantive changes, first, to see whether the content of the change belongs to the scope of substantive changes stipulated by law, including the subject matter of the contract, price, quality, performance period, scope of the project, construction period, payment method, payment term. Second, when the content of the change belongs to the substantive change stipulated by law, the scope of the change should also be considered, whether it is a normal change or a substantive change, while the consideration and determination of the scope of the change belongs to the scope of the judge's discretion. When the content of the change is not clearly stipulated in the law, it is also necessary to consider whether the content of the change will lead to a significant change in the rights and obligations of both parties, resulting in unequal rights and obligations, such as the terms of payment, payment methods, liability for breach of contract and other provisions above. In judicial practice, as in the above-mentioned cases, under the premise of the validity of the winning contract, the judge's discretion is generally to measure the size of the change in the relationship between the rights and obligations of both parties, if the change in the content of the contract leads to a serious imbalance of interests between the two parties will generally be identified as a substantive change.

Key words: