Real estate perspective: can subcontractors, illegal subcontractors, and affiliated people claim to pay management fees to actual builders?

The management fee generally refers to the expenses incurred by the construction unit for the organization of construction production and management. In the general contract of construction project, no matter what kind of pricing model is adopted, the management fee is often included in the total cost of the project, and the contractor shall pay the management fee (enterprise management fee) to the general contractor according to the agreement of the general contract. In valid construction subcontracting contracts (professional subcontracting and labor subcontracting, etc.), there is basically no dispute that the general contractor charges a certain management fee to the subcontractor. on the contrary,In the case of subcontracting contracts and illegal subcontracting contracts and affiliated construction, the management fee agreed in the contract is often not the management fee in the project cost, but the "subcontracting fee", "subcontracting fee" or "affiliated fee", which belongs to the actual construction person to obtain the project to the subcontractor, illegal subcontractor or affiliated person (The following are referred to collectively as "subcontractor" or "subcontractor" for convenience") consideration paid. In this case, how to deal with the subcontractor's claim for management fee to the actual builder? Or, how to deal with the claim of the actual builder's claim for the subcontractor to return the management fee deducted from the project payment? This paper intends to combine the judicial judgment point of view for analysis.

There are generally four views in judicial practice on whether subcontractors should be supported in charging management fees from actual constructors.Subcontracting, illegal subcontracting and affiliation violate the mandatory provisions of laws and administrative regulations, the contract is invalid, and the management fee agreed in the contract belongs to illegal income, does not fall within the scope of civil law adjustment, and should be collected or transferred to the administrative department for handling;Two isIn the event that the contract is invalid, the management fee agreed upon in the contract has no factual basis, and the claim that the subcontractor requests the actual builder to pay the management fee or deduct it directly from the project payment shall not be supported, and what has been paid or deducted shall be returned as unjust enrichment;Three isWhen the construction project is completed and accepted, although the contract is invalid, the project price should still be paid (compensation) by reference to the contract, and the management fee is part of the construction project price, so it should be handled by reference to the agreement;Four isIf the subcontractor participates in the project management of the actual construction person and pays a certain cost, instead of the subcontractor simply subcontracting for profit, it should be handled with reference to the contract agreement.The specific views of the referee are as follows:

The early judgment, such as the Supreme Law (2014) Min Shen Zi No. 365, held that:"Intensify the investigation and punishment of illegal subcontracting and illegal subcontracting in the construction process of the project, ensure the earmarking of the project funds from the source, eliminate the hidden dangers of project quality caused by the interception of the project funds at various levels, and ensure the quality and safety of the project. Therefore, the illegal issue of the South Henan Expressway Company's collection of rebates involved in this case should be dealt with by the relevant departments in accordance with the law." The subsequent judgmentFor example, (2018) Supreme Law No. 586 considers that: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. Although the judgment did not directly collect the management fee agreed in the contract, it rejected the claim to pay the management fee on the grounds of lack of legal and factual basis.Another example is (2020) the Supreme People's Court No. 1008 that: The amount of the management fee agreed in the invalid contract shall be imposed by the people's court.(2019) Supreme Court Resolution No. 1752 held that:The management fee agreed in the invalid contract is the consideration exchanged between the two parties based on the qualification of the construction of the project, which does not meet the constituent elements of unjust enrichment.

The above judgment point of view can be summarized as follows: the management fee in the invalid contract violates the mandatory provisions of the law, belongs to the illegal income, and does not belong to the scope of adjustment of the civil law. The attitude of the civil law is to let the "illegal expenses stay in place", which should be adjusted by the public law and should be collected or transferred to the administrative department. The claim for payment of management fees or the claim for return after payment is not supported.

For example, the Supreme People's Court No. 576 believes that:The relationship between Huang Jianguo and Dongfang Company is to borrow qualifications, but the act of borrowing qualifications in the field of construction projects violates the mandatory provisions of the law. The management fee agreed upon by both parties is actually the consideration paid by Huang Jianguo for borrowing the qualification. Dongfang Company's request to Huang Jianguo to pay the management fee according to 1.2 of the project price involved in the case lacks legal basis, and the court will not support it.Another example is (2020) Supreme Law No. 898:The Supreme People's Court held that Baye Company and Baye Xining Branch are professional construction enterprises, and they have obvious faults in subcontracting the project involved to individuals without corresponding construction qualifications. The agreement signed by Baye Xining Branch and Li Mouchu is an invalid contract, and it cannot prove that it actually participated in the relevant management of project construction. Its appeal request lacks basis and will not be supported.

For example, (2020) the Supreme People's Court No. 860:The Supreme People's Court held that according to the agreement of the Subcontract signed between the military construction company and the basic company, the basic company is required to pay the management fee to the military construction company in accordance with a certain proportion of the project price, of which the proportion is 2% for small and high-rise buildings and 3% for multi-storey buildings. Although the "subcontract" is invalid, the military construction company cooperates with the basic company in the allocation and settlement of funds and construction materials with the contractor, material suppliers, labor service units and other parties during the construction process, and arranges staff to participate in the on-site management of the project involved in the case. it is not improper to require the basic company to pay the management fee according to the original agreement, and the first instance judgment supports it.

For example, (2021) Supreme Fa Min Shen No. 3986:The Supreme People's Court held that the "Internal Contract Construction Agreement for Single Project" involved in the case stipulated that "Jiangsu Shuanglou Company shall charge 4.6% of the total settlement price of the project completed by Nanjing Jiuhuan Company (including the purchasing materials of the construction unit and Jiangsu Shuanglou Company) for the general contract management fee". Therefore, Nanjing Jiuhuan Company is aware of the agreement on management fee between the two parties. The Court of Second Instance is invalid based on the "Internal Contract for Single Project, combined with the fact that Jiangsu Shuanglou Company has carried out corresponding management, it is not obviously inappropriate to decide that Nanjing Jiuhuan Company should bear 50% of the management fee involved in the case.Another example is (2020) Supreme Fa Min Zhong No. 79The Supreme People's Court held that on the issue of whether Jiang Junpeng should charge management fees and the proportion of management fees, Jiang Junpeng provided evidence to prove that he employed management personnel, organized meetings, coordinated up and down, and purchased insurance for the construction of the project involved in the case. Jiang Junpeng fulfilled his management obligations for the project involved in the case, and the court of first instance ruled that Wang Baozhen paid him a certain management fee, which was not improper. Because Jiang Junpeng does not have the qualifications for construction and management of construction projects, the court of first instance held that the standard of 7% of the project cost charged by Jiang Junpeng in the internal contract was too high, and decided to reduce the management rate to 2%, which was not improper, and the court maintained it.

The minutes of the 7th judges' meeting of the Second Circuit Court of the Supreme People's Court in 2020 put forward three views on the treatment of the agreed management fee after the construction contract is invalid.(The following views are derived from the Minutes of the Judges Meeting of the Second Circuit Court of the Supreme People's Court (second series), published by the People's Court Press in April 2021):

When the construction project is completed and accepted, although the construction contract is invalid, the project price should still be paid by reference to the contract, and the "management fee" is an integral part of the construction project price, so it should be dealt with by reference to the agreement. If the subcontractor claims "management fee" to the actual builder, it shall be supported; if the actual builder requests the return of "management fee", it shall not be supported.

The "management fee" stipulated in the contract under the circumstances of the title is illegal, and the relevant provisions in the contract are invalid, and the treatment of the invalid contract should be referred. If the subcontractor claims that the "management fee" should be deducted from the project price paid, it shall not be supported; if the actual builder claims to return the management fee "or the project price does not deduct the" management fee ", it shall be supported.

In the case of the contract, the "management fee" is part of the price of the construction project, and some is the subcontracting profit of the subcontractor. For the former, if it is found that the subcontractor is actually involved in the construction management service, it can be dealt with by reference to the contract; for the latter, there is no question of returning the input at a discount because the subcontractor has not managed or actually paid. In the distribution of the consequences of the invalidity of the contract, the principle of good faith should be followed, and the parties who are not in good faith should not benefit from the invalidity of the contract.

The judge's meeting took the actual participation in the management said: 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 specific 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, non-contract parties cannot claim to adjust the amount of work to be paid by the agreement between the subcontractor and the subcontractor on the "management fee.

In accordance with the provisions of laws, administrative regulations and judicial interpretations, the following legal analysis is carried out on whether the subcontractor can claim to pay the management fee to the actual builder, taking into account the rules of adjudication of cases in judicial practice and the opinion of the minutes of the meeting of judges of the Supreme Court:

First of all, the meaning of "illegal act" in civil law is only a factual act (corresponding to legal act), "collection" or "transfer to the administrative department to deal with" belongs to the form of responsibility in public law, the fact of civil law can not be concluded in civil litigation to bear the responsibility of public law.The management fee in an invalid contract is an illegal income and should be collected. This view mostly stems from the provisions of Article 4 of the interpretation of the Supreme People's Court on the application of legal issues in the trial of disputes over construction contracts of construction projects (no longer valid): "the people's court may, in accordance with Article 134 of the General principles of the Civil Law, confiscate the illegal gains that the parties have obtained." The (I) of the Supreme People's Court on the Interpretation of Legal Issues Applicable to the Trial of Construction Contract Disputes, which came into effect in 2021, has abolished the above-mentioned provisions, the General Principles of Civil Law have become invalid, and there is no longer any expression in the Civil Code to collect illegal income. "Illegal income", "collection" and "transfer to administrative departments for handling" should fall within the scope of administrative law enforcement and should not be identified and enforced in civil disputes. The tasks of public law and private law are different, and the relationship of rights and obligations between equal subjects to be resolved by civil legal norms, for one of the subjects of civil litigation, the most unfavorable consequence for it is that its claim is not supported, and should not be borne by the way of public law liability.

Secondly, subcontracting, illegal subcontracting and affiliation are illegal in public law, which is the need to maintain market order; in the field of private law, as a factual act, the purpose of litigation is to solve the problem of distribution of rights and interests among civil subjects, not to identify illegal gains.Even when the judicial interpretation stipulates that the illegal proceeds should be collected, few courts or administrative organs will collect them. Even if they decide to collect them, there is no enforcement procedure. The reason is that the purpose of legislation is to suppress illegal acts through the form of public law liability of "collection", but it ignores the boundary between public and private law, and finally distributes the management fees agreed in the invalid contract between the two parties to the contract for various reasons. Just as the construction contract for a construction project is invalid, but the actual builder can be compensated at a discount by reference to the contract actually performed on the price of the project. The actual builder has materialized the various costs into the construction project, and in accordance with the law, the treatment of invalid contracts should be "returned separately" in principle, but in the case of no return, compensation can only be made by reference to the contract. The field of construction engineering has its particularity. Even if there are public law violations such as subcontracting, illegal subcontracting, and affiliation, the cost of restoration cannot be restored to the original state or the cost of restoration is high when the project is completed and accepted. The project benefits are distributed among the cost payers, rather than the management fees agreed in the invalid contract as illegal gains.

In the event that the contract is invalid, the key to determining whether the subcontractor can take the management fee is whether it actually participates in the management of the project, the degree of participation and the cost input. A combination of the facts of the case should be distinguished to determine whether the claim of management fee should be supported, which can be divided into the following three situations:

First, the subcontractor actually participated in the management of the construction process such as project progress, safe and civilized construction, project quality, acceptance, etc., invested human resources, and incurred corresponding management costs.The cost is the "enterprise management fee" stipulated in the "Construction and Installation Project Cost Project Composition", which specifically includes management personnel wages, office expenses, travel and transportation expenses, fixed asset usage fees, tool usage fees, labor insurance and Employee welfare expenses, labor protection expenses, inspection and test expenses, labor union expenses, employee education expenses, property insurance expenses, financial expenses, taxes and others. The above-mentioned expenses together with the expenses such as "human resources machine" constitute the total cost of the construction project. According to the provisions of judicial interpretation, if the quality of the construction project is qualified, it shall be compensated at a discount according to the contract. Reference to the contractual agreement does not mean that the amount or proportion agreed upon in the invalid contract is the standard, but that the value of the results of labor materialized into the project is compared with the amount of the management fee agreed upon in the contract, and the referee adjusts and comprehensively determines the specific amount or proportion of the management fee according to the facts.

Second, the subcontractor advocates that the management fee is not the enterprise management fee in the above-mentioned normative sense, but the external cost borne on behalf of the actual construction person.For example, during the construction process, fines due to the violations of the actual construction personnel, compensation for casualties due to safety accidents, and legal liabilities due to external disputes due to infringement. The subcontractor and the actual builder can agree on the sharing of the above-mentioned responsibilities, but in the external legal relationship, there is a situation where the subcontractor assumes the responsibility and then claims to the actual builder in the name of management fee. The consequences of violations in administrative law should not be adjusted by civil law, and it is believed that administrative actions such as fines should be resolved through administrative remedies. For the tort compensation costs incurred during the construction process, they shall be reasonably apportioned between the subcontractor and the actual construction party or borne by one party in accordance with the tort legal system and the facts of the case, and shall not be recognized as project management fees.

Third, the subcontractor neither participated in the management of the project and cost input, nor bear the external costs, but only "to the actual construction of the construction qualification of the cloak".In this case, the agreement of the management fee is the consideration of the two parties based on the construction qualification exchange. The subcontractor does not have any input, or even uses its own qualifications and the ability to contract the project to earn the difference between the contractor and the actual construction, and its simple profit-making, access to management fees should not be supported.

Subcontracting, illegal subcontracting and affiliation are illegal in public law, and in private law, the contract is invalid due to violation of the mandatory provisions of the law, but the agreed management fee should not be recognized as illegal income, nor should it be adjusted by public law means such as "collection. Based on the particularity of the field of construction engineering, when the contract is invalid, the parties to the contract cannot "return each other" based on the legal consequences of invalidity ". According to the judicial interpretation of the principle of handling invalid contracts and the rules of judicial practice, in order to balance the rights and interests of both parties, the amount or proportion of management fees should be determined in the light of the actual investment in the project management costs, the actual construction of the profits and so on.