Construction projects are characterized by strong professionalism, long cycles, and complex processes. Based on the fact that construction projects are related to public safety and livelihood security, relevant laws and regulations impose mandatory regulations on the quality of construction projects and market order [1]. Due to the particularity of construction projects and the special requirements of supervision, the legal risks of construction projects have their unique characteristics. Based on previous experience in specialized legal services and case representation in construction projects, this article proposes suggestions for the prevention and control of legal risks in construction project disputes from the perspective of the employer.

1、 Summary of Construction Project Disputes

（1） Types of construction project disputes

According to the subject of litigation, construction project disputes are divided into the litigated cases of the employer and the litigated cases initiated by the employer. The sued cases of the Employer mainly include: the Contractor requests the Employer to pay the project funds according to the construction contract; "And the actual constructor who has no direct contractual relationship with the employer, in accordance with Article 43 of the Interpretation of the Supreme People's Court on Applicable Legal Issues in the Trial of Construction Contract Disputes (I), sue the employer to assume responsibility for the actual constructor within the scope of the unpaid construction project price.". The Employer's active prosecution/counterclaim cases against the Contractor's main complaint mainly include: the Employer requests the Contractor to bear the liability for breach of contract/compensation for construction period, quality, safety production, etc; And request the contractor to return the overpaid project funds.

（2） Characteristics of Construction Project Contract Dispute Cases

1. Complex legal relationships and long litigation cycle

The construction project involves multiple entities, including construction, survey, design, construction general contracting, professional subcontracting, supervision unit, cost review unit, etc. The diversity of subjects and the multi-level and multidimensional legal relationships determine the complexity of the case. Compared with traditional civil and commercial cases, the trial cycle of construction engineering cases is longer [2]. The EPC case tried by the Supreme People's Court on behalf of the author's team has been in dispute since March 2018, and has not yet obtained a valid judgment of the second instance.

2. Strong professionalism

Construction engineering is a highly professional and technical system work. Involved in business license: The qualification system for construction enterprises, including design qualification, construction qualification, supervision qualification, engineering consulting qualification, general contracting qualification, etc., indicates that this is a licensed business scope; Specifications related to construction supporting facilities: including project bidding in the bidding law, various specifications for project cost, project general contracting management methods, project quality management system, and so on. Industry related systems: construction period management system, change management system, claim system, cost management system, warranty period system, etc.

3. Effectiveness of construction contracts and the importance of agreements

The construction contract includes the general construction contract and its contract documents, supplementary agreements, memorandums, visas/negotiations, and other engineering process contract documents. Although there are many laws, regulations, and norms in construction engineering cases, the specific provisions of a construction contract, which serves as the final confirmation document for the adjustment of the rights and obligations of all parties, should generally prevail. Therefore, it is agreed in the construction contract that when signing and reviewing contracts, it is necessary to analyze the actual performance of similar contracts in the past, fully consider and evaluate risks, and set corresponding risk prevention provisions.

4. Organizational evidence is important and often involves judicial expertise

In construction case litigation, the preliminary work includes collecting litigation materials, sorting out evidence, determining litigation plans, and formulating litigation strategies. The focus of dispute in the case is mainly on three aspects: cost, construction period, and quality. Due to its strong professionalism, it is often necessary to entrust judicial expertise institutions to issue expert conclusions to identify disputed facts.

2、 Common Legal Risks of the Employer in Dispute Cases

1. Risks of contractor's affiliation, subcontracting, and illegal subcontracting during construction

After comprehensive evaluation, the Employer has signed a contract with the selected contractor based on its trust. However, due to the limitations of the qualification licensing system in the construction industry and the different interests of various entities in the construction market, the actual construction personnel who are actually responsible for the implementation of the project may be those who are affiliated, subcontracted, or illegally subcontracted. In this case, not only can the project not be guaranteed, but in the event of a dispute, there is also a risk that the relevant construction contract will be deemed invalid.

2. Construction period, quality, and safety production risks caused by the Contractor

During the implementation of engineering projects, there is a risk that the contractor may encounter delays, substandard quality, and production safety issues due to various reasons such as unfavorable construction organization and improper construction plans, resulting in delayed delivery of the project and increased project costs.

3. Settlement risk of failing to handle visa in a timely manner in case of engineering changes

One of the core disputes in engineering cases is the determination of the settlement price, and settlement differences mostly include the measurement and valuation of engineering changes. Strengthening engineering change and visa management during the construction process will greatly reduce settlement analysis and litigation risks.

4. Risk of the Employer not responding to the Contractor's request for instructions, claims, and settlement as agreed

The model text of the construction commission system general construction contract sets a response period for the contractor to submit requests, claims, and settlement claims to the employer/supervisor, and stipulates that if the employer/supervisor does not respond within the agreed period, it will be deemed to recognize the corresponding claims of the contractor. In practice, if the Employer/Supervisor fails to respond to the Contractor's claim as agreed, there is a risk of being recognized as recognizing the Contractor's claim.

3、 It is recommended that the Employer ensure the legality and validity of the construction project contract

The basis for the Employer to prevent the legal risks of construction project disputes lies in the existence of legal and effective contract terms between the Employer and the Contractor on the disputed matters, ensuring that the disputes have agreements and evidence to follow.

In judicial practice, the review of the effectiveness of contracts is the key and primary issue in handling disputes over construction contracts. Even if both parties have not raised objections, the court should take the initiative to review them ex officio. If the construction project contract is invalid, the adverse impact on the Employer may be greater than that of the Contractor. The main reason is that if the construction project contract is invalid, the contractor has the right to pay the project price according to the contract agreement, and the employer should compensate the contractor based on the project quality. However, if the contractor returns the contract duration, quality, and other contractual provisions, the employer cannot directly apply the contractual penalty provisions, but can only claim liability for contracting negligence. In this way, the burden of proof for the Employer's claim [3] will increase and be subject to the discretion of the judge, resulting in uncertainty.

Therefore, the employer should first identify and prevent the risk of invalidity of the construction project contract, and in combination with the mandatory provisions of laws and regulations on the behavior of the employer [4], it is recommended that the employer: first, implement the contract awarding premise and ensure that the planning approval procedures such as the construction project planning license are obtained; "If a project must be subject to bidding or the employer decides to sign a contract through bidding, it shall organize bidding in accordance with the law;"; The third is to comply with the mandatory provisions of laws and regulations on contract awarding, construction period, project quality, etc; Fourth, if the employer signs a contract through bidding according to law or independently, it is recommended to advance the contract review to the bidding stage [5] to prevent the inconsistency between the contract documents and the bidding documents, and to apply the risks stipulated in the bidding documents.

4、 It is recommended that the Employer strengthen the control of the performance process

1. Do a good job of contract disclosure and strengthen contract management. Project management personnel are fully familiar with the main contents of the contract, creating favorable conditions for the smooth performance of the contract.

2. Review the contractor's qualifications and strengthen the review of the contractor's credit standing

It is recommended that the employer comprehensively consider the qualifications and capabilities required of the contractor in combination with the nature, area, investment scale, construction technology, etc. of the project. If a contract is signed through bidding, the qualifications and capabilities required of the contractor should be considered as the bidding qualification review requirements. If the contract is signed through direct negotiation, the qualification of the contractor should also be verified before signing the contract, the original of relevant materials should be verified, and a valid copy should be retained.

3. Strengthen construction process management, identify and timely stop affiliation, subcontracting, and illegal subcontracting

It is recommended that the employer clearly agree on the liability for breach of contract and the terms of termination in the event of subcontracting, illegal subcontracting, or even affiliation by the contractor, and ensure that relevant liability provisions are refined to make them operational. At the same time, in order to prevent the risk of affiliation, it is recommended to specifically require the contractor to submit the authorization of the project management personnel, along with the labor contract, social security, and tax payment records, and retain them as evidence of the identity of the contractor's staff.

Strengthen the management of changes and visas during construction to prevent settlement risks

In the event of engineering changes during the performance of the contract, it is recommended that the Employer strictly follow the change procedures agreed in the construction contract to confirm the change implementation plan and the price after the change, promptly identify the responsibility for the change, clarify the change valuation, and sign a visa or supplementary agreement.

5. Reply to the contractor's request for instructions, progress payment/settlement payment application, and claim application as agreed

The construction contract processes are numerous and complex, requiring close cooperation between the Employer and the Contractor to achieve the purpose of the contract. Even if the emphasis is placed on protecting the interests of the Employer in terms of terms, it may lead to differences in the performance of the contract, or even failure to perform. Therefore, it is recommended that the Employer closely cooperate with the Contractor during the performance of the construction contract, promptly respond and leave a written trail to ensure that the Contractor can smoothly promote the project implementation, while preventing risks deemed to be recognized as recognizing the Contractor's claims.

6. Pay attention to performance traces and fixed evidence

The signing of a construction contract for a construction project is only the beginning of the project. During the performance of the contract, both parties should strengthen the performance management of the construction contract. It is recommended to perform obligations strictly in accordance with the contract and pay attention to the retention of performance process documents. The specific forms include but are not limited to: 1. Timely sending letters to urge performance, rectification, and claims; 2. Clarify the main violations of the construction party in the minutes of supervision meetings and regular site meetings; 3. Pay attention to the management and retention of construction materials.

In general, regarding the prevention of legal risks in the construction project of the Employer, it is recommended to strengthen the review and improvement of the content of the construction project contract based on ensuring the legality and effectiveness of the construction project contract and combining the characteristics and requirements of the project; At the same time, it is recommended to strengthen performance process control and strengthen evidence retention. Form a closed loop of project management from two aspects of agreement and performance, promote the orderly development of engineering projects, achieve the purpose of the Employer's contract, and prepare for possible risks.

If you need legal support in the implementation of a project or in a project dispute, please feel free to contact us.

References and Notes:
[1] Among them, the quality of construction projects includes qualification management, project procedure management, and contracting behavior management, while the market order mainly includes the requirements for bidding.
[2] The specific reasons for the long litigation cycle vary from case to case. However, compared to ordinary civil cases, construction engineering cases have many litigants, numerous evidences, and involve professional expertise such as cost and quality, leading to a certain degree of uncontrollability in the trial cycle.
[3] Article 6 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 (I) generally establishes the criteria for judging compensation in the event of invalidity of construction contracts for construction projects. First, consider the compensation liability comprehensively from the factors of fault, loss, and causality; If the magnitude of the loss cannot be determined, the decision shall be made with reference to the terms of the contract and the above factors. In addition, according to the general theory, the liability for compensation after the contract becomes invalid belongs to the liability for contracting fault. The losses caused by contracting negligence are generally losses of trust interests, excluding unrealized interests. In this way, there is greater uncertainty about the scope of the Employer's claim against the Contractor. Based on the above provisions and viewpoints, if the contract is invalid, the employer shall provide evidence to prove three aspects of the claim: first, there is actual loss, second, the contractor is at fault, and third, there is a causal relationship between the employer's loss and the contractor's fault.
[4] In judicial practice, the situations that lead to the invalidity of construction contracts can be summarized as follows: 1. Violation of qualification management regulations; Violation of bidding management regulations; The third is the illegal and breach of contract in the development and contracting activities; Fourth, other situations where the contract is invalid. According to the Judicial Interpretation of Construction Contract Disputes I, the specific situations regarding the invalidity of construction project construction contracts mainly include: 1. The contractor has not obtained the qualification of a construction enterprise or exceeds the qualification level (Article 1, Paragraph 1, Item 1, and Article 4 of the Construction Engineering Interpretation I); The second is that the unqualified actual constructor borrows the name of a qualified construction enterprise (Article 1, Paragraph 1, Item 2, Article 7 of the Construction Engineering Interpretation 1); The third is that the construction project must be subject to bidding, but the bidding has not been conducted or the bid winning is invalid (Article 1, Paragraph 3, of the Construction Engineering Interpretation 1); The fourth is that the contractor illegally subcontracts construction projects (Article 1, Paragraph 2, of the Construction Engineering Interpretation 1); Fifth, the contractor illegally subcontracts construction projects (Article 1, Paragraph 2, of the Construction Engineering Interpretation 1); Sixth, the Employer did not obtain planning approval procedures such as a construction project planning license before the prosecution (Article 3 of the Construction Engineering Interpretation 1).
[5] Article 57 of the Regulations for the Implementation of the Bidding Law stipulates that the tenderee and the winning bidder shall sign a written contract in accordance with the Bidding Law and these Regulations. The main terms of the contract, such as the subject matter, price, quality, and performance period, shall be consistent with the contents of the bidding documents and the bidding documents of the winning bidder. The tenderee and the winning bidder shall not enter into any other agreement that deviates from the substantive content of the contract. The tenderee shall return the bid security and bank deposit interest for the same period to the winning bidder and unsuccessful bidders within 5 days after the signing of the written contract at the latest.