Construction Engineering Environmental Capital Law Review (No. 19)... The settlement of engineering disputes in the case of invalid construction contracts-remember a construction project construction contract dispute case.

On March 15, 2013, Company B (the employer) and Company A (the contractor, the agent of the Exchange) signed the Construction Framework Agreement, agreeing that Company A should contract to construct a project to be developed by Company B, and make an agreement on the location of the project, the scope of the project contract, the pricing principle, the contract price, the project quality, the liability for breach of contract and other substantive contents.

In April 2014, Company B invited public bidding for the residential building project involved in the case, and Company A participated in the bidding. On July 1, 2014, Company A obtained the Letter of Acceptance for the residential building project involved in the case. On July 29, 2014, Company B and Company A signed the "Construction Project Construction Contract", which agreed that Company A would undertake the residential building project involved in Company B's case.

On August 18, 2014, Company B and Company A signed the Construction Project Construction Contract again, which agreed that Company A should undertake all the contents of civil engineering, water, heating, strong current and weak current system engineering except unit door, pile foundation, dewatering, foundation pit support, fire protection.

On January 8, 2015, Company A obtained the Letter of Acceptance for Section A of the underground garage involved in the project. On January 11, 2015, Company B and Company A signed the "Construction Project Construction Contract" for the third time, agreeing to the construction of Section A of the underground garage involved in the project by Company A.

Before October 10, 2015, the residential buildings involved in the project were capped one after another. Before June 27, 2016, the acceptance of the main structure of the above residential buildings is qualified. On December 26, 2015, the construction of all projects was stopped. On May 17, 2016, Company B and Company A signed the "Confirmation of Project Quantity Involving the Case". On May 31, 2016, Company B and Company A signed the "Agreement on Resumption of Work Involving the Case". On July 5, 2016, as Company B failed to fulfill the agreement of the resumption of work agreement, Company A issued a "Notice of Suspension of Work" to Company B. On July 11, 2016, Company A stopped construction again.

On November 25, 2016, the case was filed in Shandong Higher People's Court. Company A filed a lawsuit with the court and requested: 1. Company B is required to pay overdue project funds, interest and liquidated damages for overdue payment; 2. Company B is required to pay the actual expenses of the project such as personnel wages and rental fees, and the actual interest paid to pay the wages of migrant workers after the shutdown; 3. Request confirmation of the priority right to compensation for the construction project price. Company B filed a counterclaim: Company A is required to compensate for economic losses (the specific amount is determined according to the assessment).

The focus of the core dispute in this case has five points:

1. Whether the framework agreement, the three construction contracts, the confirmation of the project quantity and the resumption of work agreement are legal and valid;

2. Whether Company A's claim for Company B to pay outstanding project funds, interest and liquidated damages for late payment should be supported;

3, A company requires B company to pay personnel wages, rental fees and other actual expenses of the project and pay after the shutdown to pay the wages of migrant workers and the actual expenditure of interest claims should be supported;

4, A company's request to confirm the right to priority compensation of the construction project price should be supported;

5. Whether Company B's claim for compensation for economic losses from Company A should be supported.

(I) on the first point of dispute, the Court held that:

The project involved is within the scope of the project that must be tendered in accordance with the law. Both parties have signed a framework agreement before bidding and winning the bid for the project involved, agreeing that Company A will contract the project involved in the case, which violates the mandatory provisions of the Bidding Law. Therefore, in accordance with the provisions of Article 52, Item 5 of the original Contract Law, the court found that the framework agreement and the three construction contracts involved in the case were invalid. The confirmation of quantities and the resumption of work agreement are reached by the parties after the suspension of the project involved in the case for the purpose of checking the cost of the completed project and the resumption of work, which does not violate the mandatory provisions of laws and administrative regulations and is legal and effective.

(II) With regard to the second dispute, the Court held that:

First, on the outstanding payment of the project. Article 2 of the old "Judicial Interpretation of Construction Projects" (Fa Shi [2004] No. 14, now repealed) stipulates that "the construction contract of the construction project is invalid, but the construction project has passed the completion acceptance, and the contractor requests to pay the project price with reference to the contract., Should be supported", Article 14, Item 3 stipulates that "the construction project has not been completed and accepted, and the employer uses it without authorization, the date of completion shall be the date of transfer of possession of the construction project". In this case, although the framework agreement and the three construction contracts are invalid, and the project involved in the case has not been completed and accepted, both parties agree that the project involved in the case has been delivered for use, and also check the cost of the completed project. Therefore, the court supports Company A's request for Company B to pay the project funds.

Second, about interest. 1. On the basis. (1) Because the court has entrusted the quality problems and repair costs of the underground garage according to the application of Company B, and Company B has also filed a corresponding counterclaim request, the court will no longer detain the warranty for the underground garage project. (2) For the cost of other projects except the underground garage, the construction contract stipulates that the warranty period is 2 years, and the warranty is 3% of the project cost. Although the project involved in the case has not been completed and accepted, the main structure of the residential building involved in the case has passed the acceptance as of June 27, 2016, and Company A has not made any claim on the cost of the construction project after signing the resumption agreement on May 31, 2016. Therefore, the warranty period shall start from June 27, 2016 and expire on June 26, 2018, and the warranty fund shall be returned. 2. About the starting time of interest. Article 18 of the old Judicial Interpretation I of Construction Projects stipulates that "interest shall be paid from the date on which the price of the project is payable". The two parties signed the confirmation of the project quantity on May 17, 2016, and reached an agreement on the cost of the project involved in the case, so the interest shall be calculated from May 17, 2016. 3. About interest rates. Company A requires Company B to bear the corresponding interest rate of the outstanding project payment as "bank interest".

Third, on late payment liquidated damages. The framework agreement and the three construction contracts involved in the case are invalid, and the corresponding breach clauses are also invalid. Company B has also compensated Company A for lack of funds. Therefore, Company A requires Company B to pay liquidated damages for overdue payment, and the court does not support it.

(III) With regard to the third point of dispute, the Court held that:

First, the confirmation of quantities and the agreement on resumption of work signed by both parties state that the reason for the shutdown is that Company B's funds are not in place, and Company B has also compensated Company A for the shutdown. Therefore, Company A requires Company B to compensate for the corresponding losses caused by the shutdown. The claim is reasonable, but Company A has the responsibility to prove the existence of the corresponding losses. Second, Company A claimed that the actual project expenses such as personnel wages and rental fees occurred from December 1, 2015 to October 15, 2016, but the corresponding basis was not confirmed by Company B's signature. The mechanical and labor costs listed in the corresponding evidence during the shutdown period were not supported by evidence such as actual payment vouchers. The occurrence time of management personnel and labor wages listed in the corresponding evidence was from March to December 2016, which was inconsistent with the loss claimed by Company A. Third, Company A claims that it borrowed money to pay the wages of migrant workers and actually paid interest after the shutdown. However, the IOU provided by Company A is not sufficient to prove that it borrowed money to pay the wages of migrant workers, nor is it sufficient to prove that it borrowed money due to the fault of Company B. The amount of interest payable on the loan provided by Company A is calculated unilaterally and has not been confirmed by Company B. Therefore, the evidence provided by Company A is not sufficient to prove its claim, and the court does not support it.

(IV) on the fourth point of dispute, the Court held that:

According to the provisions of Article 286 of the original Contract Law and the original Reply on the Priority of Compensation (Fa Shi [2002] No. 16, now repealed), the construction project contractor has the priority of compensation for the project discount or auction price of its construction, and the period for the contractor to exercise the priority is six months from the date of completion of the construction project or the date of completion agreed in the contract, the price of the construction project includes the actual expenses of the staff remuneration and materials that the contractor shall pay for the construction project, and does not include the losses caused by the contractor's breach of contract. In this case, although the construction contract for the construction project involved in the case stipulates the completion date, company B admitted in the confirmation of the project quantity and the resumption agreement that the project involved in the case was shut down due to insufficient funds. the resumption agreement also stipulates that "the construction period will be automatically postponed, and company B will not make a claim for the construction period accordingly. the progress and construction period of the project after the resumption shall be separately agreed upon by both parties", and the two parties have not actually agreed upon the construction period, the residential building project involved in the case has not been completed and accepted, and the underground garage project involved in the case has not been completed so far. Therefore, Company A submitted to Company B on November 7, 2016 that the claim of priority compensation for the construction project price did not exceed the legal deadline. In addition, the interest that Company B should pay to Company A is a legal interest on the outstanding payment of the project and should be attributed to the scope of priority compensation. Therefore, Company A has the priority right to pay the construction price within the scope of the construction project.

The (V) Court on the fifth focus of the dispute held that:

Judging from the appraisal conclusion, both precipitation and construction are the reasons for the quality problems of the underground garage. When the appraisers appeared in court, they also said that precipitation and construction are the reasons for the rise. Now both parties have not provided sufficient evidence to prove that the quality problems of the underground garage should be completely attributed to the other party. Therefore, the court, according to the appraisal conclusion, combined with the construction of the underground garage project and the evidence provided by both parties, it is decided that Company A shall bear 60% of the quality responsibility of the underground garage project and Company B shall bear 40% of the quality responsibility of the underground garage project.

(I) the project involved in the case is a project that must be tendered according to law, the act of "determining first and then recruiting" violates the mandatory provisions of the tendering and bidding Law, and the court found that the framework agreement and the three construction contracts involved in the case were invalid.

1. The project involved in the case is a residential building project. In April 2014, it was subject to public bidding. According to the current law at that time, it belonged to the scope of the project that must be tendered according to law.

Article 3 of the Tendering and Bidding Law stipulates: "The following construction projects within the territory of the People's Republic of China, including the survey, design, construction, supervision of the project, and the procurement of important equipment and materials related to the construction of the project, must be tendered: (1) Large-scale infrastructure, public utilities and other projects related to the public interest and public safety; (II) all or part of the use of state-owned funds investment or state financing projects; projects that (III) use loans or aid funds from international organizations or foreign governments. The specific scope and scale standards for the projects listed in the preceding paragraph shall be formulated by the development planning department of the State Council in conjunction with the relevant departments of the State Council and submitted to the State Council for approval. Where the law or the State Council has provisions on the scope of other projects that must be tendered, such provisions shall be followed."

Article 3 of the Regulations on Standards for the Scope and Scale of Bidding for Construction Projects formulated by the former State Development Planning Commission in 2000 (Order No. 3 of the State Development Planning Commission of the People's Republic of China, which has expired, hereinafter referred to as Order No. 3 of the Planning Commission) stipulates: "The scope of public utility projects related to social public interests and public safety includes: (1) municipal engineering projects such as water supply, power supply, gas supply and heat supply; (II) science and technology, education, culture and other projects; (III) sports, tourism and other projects; (IV) health, social welfare and other projects; (V) commercial housing, including affordable housing; (VI) other public utility projects."

Therefore, the project involved in the case belongs to the "commercial housing" stipulated in Item (V) of Article 3 of the Planning Commission Order No. 3, and belongs to the scope of projects that must be tendered in accordance with the law.

2. For projects that must be tendered in accordance with the law, the act of "deciding before bidding" violates the mandatory provisions of the "Tendering and Bidding Law". The court found that the framework agreement and the three construction contracts involved in the case were invalid.

In practice, in order to lock in the contractor in advance and exclude other competitors, many parties advance the time for substantive consultation and signing of the agreement to the start of the bidding process. This phenomenon is called "first decision and then bid". Regarding "first decision and then bidding", the "Bidding Law" and related laws and regulations are not clearly defined. When the court determines "first decision and then bidding", it often takes Article 43 of the "Bidding Law" as the legal basis. Article 43 of the Tendering and Bidding Law stipulates that "before determining the winning bidder, the tenderer shall not negotiate with the bidder on the substantive contents such as the bid price and the bidding plan". Compared with the provisions of Article 43 of the Tendering and Bidding Law, the substantive consultation act of bidding after bidding is determined is a more serious violation of the tendering law. According to the weightlifting rule, the agreement signed by the parties (pre-bid contract) violates the mandatory provisions of the law and should be invalid.

The following conditions need to be met for deciding before recruiting:

(1) Time conditions:According to Article 43 of the Tendering and Bidding Law, the time point for limiting the prohibited acts is "before the winning bidder is determined", that is, before the bid is determined. In the case of "first decision and then recruitment", the act of "first decision" may occur at the latest before the winning of the bid, not before the start of the tender.

(2) Pre-determined behavior:Before winning the bid, the tenderer and the winning bidder have signed a document with substantive content or the winning bidder has entered the site for construction. That is, the tenderer has in writing or by the winning bidder actually participate in the construction of the way in fact identified the winning bidder. If both parties determine the winning bidder in advance in the form of written documents, the documents formed by them shall contain substantive contents such as project price and payment, project quality, construction period, etc., and reflect the intention of the tenderee to determine the winning bidder accordingly.

In this case, on March 15, 2013, company B and company a signed the construction framework agreement, which agreed that company a would contract a project to be developed by company B, and made an agreement on the location of the project, the scope of the project contract, the pricing principle, the contract price, the project quality, the liability for breach of contract and other substantive contents. On July 1, 2014, Company A was determined to be the winning bidder for the project involved in the case. On July 29, 2014, August 18, 2014 and January 11, 2015, Company B and Company A signed three Construction Contracts successively. Therefore, according to the provisions of Item 5 of Article 52 of the original Contract Law, the court determined that the framework agreement and the three construction contracts involved in the case were invalid. After the repeal of the Contract Law, Article 153 of the Civil Code continues the above provision: "A civil juristic act that violates a mandatory provision of a law or administrative regulation shall be null and void. However, the mandatory provision shall not render the civil juristic act null and void. A civil juristic act that violates public order and good morals shall be null and void".

3. The provisions on the scope of infrastructure and public utility projects that must be tendered (No. 843 of the development and Reform Regulations [2018]) came into effect on June 6, 2018. Since then, commercial residential construction projects invested by private enterprises are no longer projects that must be tendered.

Announced on March 27, 2018, Article 4 of the Regulations on Projects Subject to Bidding (Order No. 16 of the National Development and Reform Commission of the People's Republic of China, hereinafter referred to as Order No. 16 of the National Development and Reform Commission), which came into effect on June 1, 2018, stipulates: "Large-scale infrastructure, public utilities and other projects related to social public interests and public safety that do not fall under the circumstances specified in Articles 2 and 3 of these Provisions, the specific scope of the bidding must be formulated by the development and reform department of the State Council in conjunction with the relevant departments of the State Council in accordance with the principle of necessity and strict limitation, and submitted to the State Council for approval."

On June 6, 2018, the National Development and Reform Commission issued Article 2 of the regulations on the scope of Infrastructure and Public Utilities projects that must be tendered (Development and Reform regulations (2018) No. 843), which stipulates: "large-scale infrastructure, public utilities and other projects related to social public interests and public safety that do not fall under the circumstances specified in articles 2 and 3 of the regulations on projects that must be tendered, the specific scope that must be tendered includes: (1) energy infrastructure projects such as coal, oil, natural gas, electricity, and new energy; (II) railways, highways, pipelines, water transportation, and transportation infrastructure projects such as public aviation and A1 general airports; (III) communication infrastructure projects such as telecommunications hubs and communication information networks; (IV) water conservancy infrastructure projects such as flood control, irrigation, drainage, and water diversion (supply); (V) urban rail transit and other urban construction projects", which is a supplement to the NDRC Order No. 16.

The Development and Reform Regulations (2018) No. 843 deleted commercial residential buildings, but it should be noted that this regulation does not mean that all commercial residential buildings are not subject to bidding. Article 2 of the Provisions on the Scope of Infrastructure and Public Utilities Projects Subject to Bidding clearly stipulates that "projects invested in whole or in part by state-owned funds or financed by the state include: (1) projects using budget funds of more than 2 million yuan, and projects where the funds account for more than 10% of the investment; projects where the funds of state-owned enterprises and institutions are (II) used, and the funds occupy a controlling or dominant position." And article 3 stipulates that "projects that use loans and aid funds from international organizations or foreign governments include: projects that (I) use loans and aid funds from international organizations such as the World Bank and the Asian Development Bank; and projects that (II) use loans and aid funds from foreign governments and their institutions." Therefore, state-owned capital investment or state-financed projects, the use of international organizations or foreign government loans, aid funds and projects that meet the required standards are still within the scope of the project that must be tendered.

(II) the settlement of the construction price in the event of an invalid construction contract.

1, the construction contract is invalid in the case of the payment of the project price of the claim basis.

Article 157 of the Civil Code stipulates: "After a civil legal act is invalid, revoked or determined not to be effective, the property acquired by the perpetrator as a result of the act shall be returned; if it cannot be returned or is not necessary, it shall be compensated at a discount. The party at fault shall compensate the other party for the losses suffered as a result; if all parties are at fault, they shall each bear the corresponding responsibility. Where the law provides otherwise, in accordance with its provisions".

The second and third articles of the old "Judicial Interpretation of Construction Projects" were integrated and absorbed by Article 793 of the Civil Code, clarifying that in the case of invalid contracts, the nature of the payment of the price is "compensatory"; "Should be supported" becomes "reference", "completion acceptance" is changed to "acceptance" (acceptance of invalid contracts). Article 793 of the Civil Code stipulates: "The construction contract for a construction project is invalid, but if the construction project is accepted and accepted, the contractor may be compensated at a discount by reference to the contract's agreement on the price of the project. If the construction contract of the construction project is invalid and the construction project fails to pass the acceptance, it shall be dealt with according to the following circumstances: (1) if the repaired construction project passes the acceptance, the employer may request the contractor to bear the repair cost; if the construction project after (II) repair fails to pass the acceptance, the contractor has no right to request discount compensation with reference to the contract on the project price. If the contractor is at fault for the loss caused by the failure of the construction project, it shall bear the corresponding responsibility".

Article 24 of the new "Judicial Interpretation of Construction Projects" (Fa Shi [2020] No. 25) stipulates: "Several construction contracts concluded by the parties for the same construction project are invalid, but the quality of the construction project is qualified. If one party requests to compensate the contractor at a discount based on the actual performance of the contract on the project price, the people's court shall support it. The actual performance of the contract is difficult to determine, the parties request to refer to the final contract on the project price agreed to compensate the contractor at a discount, the people's court shall support.

In the case of invalid construction contract, although the construction contract is invalid, but with the construction behavior, the construction party has its human, financial and material resources into the construction project. In this case, the property (construction work) acquired by the contractor as a result of the invalid contract cannot be returned in fact, but can only be compensated at a discount.

2, confirm the settlement reference basis.

After the parties have signed multiple construction contracts for the same construction project, and all of them are found to be invalid, the settlement of the project price shall be carried out with reference to the contract reflecting the true meaning of the parties and the actual performance of the contract, taking into account factors such as the construction market at the time of contracting, the acceptance of the parties and the economic cost of litigation. If the actual performance of the contract is difficult to determine, the court may, at the request of the parties, make a settlement by reference to the final contract.

3, the contractor requires the contractor to pay the project price on the premise that the construction project has passed the acceptance.

The second and third articles of the "Judicial Interpretation of Construction Projects" applicable in this case have been integrated and absorbed by Article 793 of the Civil Code. According to Article 793 of the Civil Code, in the event that the construction contract for a construction project is invalid, if the construction project is accepted, the contractor may be compensated at a discount by reference to the contract's agreement on the price of the project. If the construction project fails to pass the acceptance, whether the contractor has the right to request the employer to compensate the project price shall depend on the repair of the project. That is, if the contractor repairs the construction work to a qualified level, he has the right to claim compensation for the price of the work; otherwise, he has no right to claim compensation.

(III) whether the interest on the construction price and the corresponding liquidated damages should be supported after the construction contract is invalid.

1. The interest of the project price belongs to the non-agreed interest of the legal interest, regardless of whether the contract is valid or not, the contractor shall pay the corresponding interest on the project price in arrears.

(1) The basis for the payment of interest shall be determined as the amount owed for the work less the warranty for the work. (2) The starting time of interest, Article 27 of the new Judicial Interpretation of Construction Works I stipulates that "interest shall be calculated and paid from the date on which the price of the project is payable". (Article 18 of the old Judicial Interpretation I of Construction Projects stipulates that "interest shall be calculated and paid from the date on which the price of the project is payable"). In this case, both parties signed the confirmation of the project quantity on May 17, 2016, and reached an agreement on the cost of the project involved in the case, so the interest should be calculated from May 17, 2016.

2, after the construction contract is invalid, the breach clause will no longer apply.

In this case, the framework agreement and the three construction contracts involved in the case are invalid, and the corresponding breach clauses are also invalid. Company B has also compensated Company A for lack of funds. Therefore, Company A requires Company B to pay liquidated damages for overdue payment, which lacks factual and legal basis, and the court has no support.

(IV) the question of whether Company A has a priority right to compensation for the construction price for the project in question.

Article 807 of the Civil Code continues Article 286 of the original Contract Law: "If the contractor fails to pay the price as agreed, the contractor may urge the contractor to pay the price within a reasonable period of time. If the contractor fails to pay within the time limit, the contractor may agree with the contractor to discount the project or request the people's court to auction the project according to law, except that it is not appropriate to discount or auction the project according to the nature of the construction project. The price of the construction project shall be paid in priority for the discount of the project or the price of the auction". The original Approval of the Issue of Priority Compensation, the original (II) for Judicial Interpretation of Construction Projects, and the current (I) for Judicial Interpretation of Construction Projects further stipulate the time limit for the exercise of the priority compensation right for the project price and the scope of priority compensation. However, none of the above-mentioned laws and judicial interpretations deal with whether the validity of the contract affects the exercise of the right of priority compensation for the project price.

The author believes that the validity of the contract does not affect the exercise of the priority compensation right of the project price, the fundamental reason is that the priority compensation right of the project price belongs to the legal right, which comes from the legal provisions, not the contractual agreement of the two parties, the purpose is to ensure that the construction party can obtain the project payment in a timely manner. The fact that a construction contract is found to be invalid is not a condition that excludes the application of Article 807 of the Civil Code (formerly Article 286 of the Contract Law). As long as the amount of project funds is determined and does not violate the law, the priority of the construction party is protected by law.

In this case, the case involved in the project was determined by the court to be invalid because the case involved in the framework agreement and the three construction contracts were invalid. However, the validity of the contract does not affect the exercise of the right of priority compensation for the construction price, and the court therefore ruled in accordance with Article 286 of the original Contract Law to support Company A's right of priority compensation for the construction price of the construction project within the scope of the construction project under construction.