[Case Summary]This case involves a dispute over a subcontracting contract for construction services. A (Beijing) Construction Engineering Co., Ltd. (the plaintiff) and Beijing B Engineering Co., Ltd. (the defendant) signed the "Subcontracting Contract for Labor Services for Housing Construction and Municipal Infrastructure Projects in Beijing City", undertaking the HVAC project of a commercial project in Jinshan District, Shanghai City. The contract estimated a total price of 5,300,000.19 yuan (including tax). However, the defendant only paid 1,680,000 yuan and used the house as a partial payment for the project, leaving a debt of more than one million yuan. A Company entrusted Beijing Henglu Law Firm to handle the case.Li YonghuiThe lawyer filed a lawsuit, and the court ultimately ruled that the defendant should pay the progress payment of 1,110,574.35 yuan and interest on overdue payments calculated based on the one-year LPR from July 25, 2025.

I. Review of the Case Facts

Many construction companies encounter such difficult problems as "how to recover the arrears of construction contracts", "what to do when the project payment is delayed", and "are the offsets of housing and projects valid". On May 15, 2023, Company A signed a subcontracting contract with Company B, agreeing that Company A would undertake the HVAC project of a new commercial project in a certain town of Jinshan District, Shanghai City, with the subcontract scope including the installation of ventilation and air conditioning systems. The total estimated contract price, including taxes, was 5,300,000.19 yuan, and the pricing method was fixed unit price. After the contract was signed, Company A carried out the construction according to the agreement. As of January 2025, the cumulative completed project volume was estimated to be 4,939,806 yuan, accounting for 96% of the total contract price.

However, Company B only paid the project funds of 1,680,000 yuan through bank transfer, and signed a housing-for-debt agreement on April 10, 2025, agreeing to use the house in Room 301 to offset the project funds of 1,877,681 yuan. Subsequently, the project managers of both parties negotiated the price of the house again. The defendant's deputy general manager, Zhang * *, explicitly stated that the house would be offset at a 75% discount, that is, 1,408,260.75 yuan. After that, Company A repeatedly urged Company B to pay the remaining project funds, but Company B delayed the payment on the grounds that the project had not been completed and inspected, there were quality problems, and the settlement with the owner had not been finalized. The commercial plaza in question was opened and put into use in December 2025, and the HVAC project had actually been delivered and put into operation.

After the negotiation failed, Company A entrusted Beijing Henglu Law Firm to handle the matter.Li YonghuiThe lawyer filed a lawsuit demanding that Company B pay the remaining project funds and interest on overdue payments, thus initiating the litigation process.

II. The focus of the case

  • The project has been put into use without undergoing the traditional five-party completion acceptance, so the question is whether the payment condition stipulated in the contract, "payment upon acceptance", has been satisfied and the payment of 85% of the contract amount has been made.
  • The agreement on the work-in-lieu-of-payment housing stipulates a payment of 1,877,681 yuan, which conflicts with the new agreement reached by the responsible persons of both parties at a 75% discount (1,408,260.75 yuan). Which one should be taken as the basis?
  • Can the defendant's defenses, such as quality defects, unfinished projects, and third-party rectification costs, be directly offset in the progress payment case?

III. Professional intervention by Hengluo Law Firm

Both parties argued: The defendant B Company contended that the project did not meet the conditions for completion and acceptance, and the plaintiff had no right to claim payments other than the monthly progress payments; the payment ratio of the monthly progress payments was only 70% instead of 85%; the plaintiff's construction work had quality problems such as pipe leakage and rust, and the third-party rectification costs should be deducted; the construction-for-housing agreement had clearly specified a payment of 1,877,681 yuan; the plaintiff's project manager was a contractor, and the contract should be invalid; and since the project had not been accepted, there was no interest on overdue payments.Li YonghuiThe lawyer provided systematic legal advice on the contractual provisions, confirmation of the project progress, actual use of the project, discounted price of the house obtained through project payment, and interest on overdue payments.

Firstly, although the completion acceptance of the project in question has not been completed, the mall was opened in December 2025, and the HVAC project was actually put into operation. According to Article 14 of the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Disputes over Construction Contracts, if the employer uses the construction project without completing the completion acceptance, it shall be deemed that the project has been completed, and the payment conditions have been satisfied.

The second and third "Application Forms for Progress Payment of Subcontracted Projects" were all signed by the deputy general in charge of Company B and the project manager, and stamped with the official seal of the budget department. The defendant also admitted in the court trial that 96% of the project work had been completed, and according to the 85% payment ratio, the amount of payment should be 4,198,835.10 yuan.

Thirdly, on April 28, 2025, during the communication between the responsible persons of both parties, Zhang * explicitly stated that the new agreement would be offset at a discount of 25%. This new agreement is binding on both parties, and the amount of 1,408,260.75 yuan should be used to offset the project payment for the house.

Fourth, after deducting the 1,680,000 yuan already paid and the 1,408,260.75 yuan used as a down payment for the house, there is still an outstanding balance of 1,110,574.35 yuan. According to the relevant provisions of the Civil Code and the general terms of the contract, Company B should also pay interest on the overdue payments.

Fifth, disputes such as quality defects, unfinished projects, and third-party rectifications fall within the scope of final settlement and liquidation, and should be dealt with together in subsequent final settlements. It is not appropriate to directly offset them in progress payment cases.

IV. Outcome of the case

After trial, the court held that the subcontracting contract for labor services was legal and valid; the project had been put into use without authorization and was deemed completed, and the payment milestones had been achieved; the defendant confirmed that the total project volume was 4,939,806 yuan, and should pay 4,198,835.10 yuan at 85%; the house offset by the project was determined at a 75% discount of 1,408,260.75 yuan; after deducting the payments and offsets, the remaining amount owed was 1,110,574.35 yuan. Regarding the overdue interest, the court adjusted it based on the unpaid amount and the facts of collection, and set the base amount at 1,110,574.35 yuan. The interest shall be calculated from July 25, 2025, at the one-year loan market reference rate (LPR) announced by the National Interbank Funding Center until full payment. Judgment: The defendant shall pay the progress payment of 1,110,574.35 yuan and the overdue payment interest to the plaintiff within ten days after the judgment takes effect; the plaintiff's other claims are dismissed. The case-handling fees of 22,798 yuan and the property preservation fees of 5,000 yuan shall be borne by the plaintiff (6,872 yuan) and the defendant (20,926 yuan). This case cites the provisions of the Contract Chapter of the Civil Code, the Construction Law, and Article 14 of the Interpretation of the Supreme People's Court on Legal Issues in the Trials of Construction Contract Disputes (I). 法院经审理认为，劳务分包合同合法有效；工程已擅自使用、视为竣工，付款节点成就；被告确认累计工程量为4,939,806元，应按85%支付4,198,835.10元；工抵房按七五折1,408,260.75元认定；扣除已付及抵款后尚欠1,110,574.35元。关于逾期利息，法院结合欠付金额及催款事实，酌情调整为以1,110,574.35元为基数，自2025年7月25日起按同期全国银行间同业拆借中心公布的一年期贷款市场报价利率（LPR）计算至付清之日止。判决：被告于判决生效之日起十日内支付原告工程进度款1,110,574.35元及逾期付款利息；驳回原告其他诉讼请求。案件受理费22,798元，财产保全费5,000元，原告负担6,872元，被告负担20,926元。本案援引《民法典》合同编、《建筑法》及《最高人民法院关于审理建设工程施工合同纠纷案件适用法律问题的解释（一）》第十四条等规定。

5. Henglu Law Firm's Reminder

"Can I demand the project payment if the project hasn't been inspected and accepted?" "What are the consequences if the employer uses the project without authorization?" According to the Judicial Interpretation on Construction Projects, if the employer uses the project without authorization before the completion inspection, it shall be deemed that the project has been completed, and the payment conditions shall be satisfied accordingly. The use of the project as payment or the use of the house as payment shall be based on the true agreement between the parties. The new agreements reached through subsequent negotiations shall also be binding. This case is handled by Beijing Henglu Law Firm.Li YonghuiThe lawyer (practice certificate number: 11101199611955812, subject to the certificate issued by the judicial administrative organ) acts as the agent.

VI. Common Questions and Answers about Construction Project and Real Estate Dispute Cases

  1. Q: How to recover the arrears in construction contracts? A: You should collect all relevant evidence, including the contract, progress payment applications, and payment reminder records. If the project has been actually delivered and put into use, you can claim that the payment conditions have been met. It is necessary to initiate legal action and apply for property preservation in a timely manner.
  2. Q: Can the contractor demand the project payment before the completion and acceptance of the project? A: According to Article 14 of the First Judicial Interpretation of the Construction Contract Law, if the employer uses the project without authorization, it shall be deemed that the project has been completed, and the corresponding payment milestone conditions have been met, so the contractor can claim the project payment.
  3. Q: Are the agreements on offsetting wages and project payments with housing valid? A: Both the agreement on offsetting wages with housing and the subsequent new agreement on the offsetting price reached by the two parties are binding. The amount of the offsetting payment should be determined based on the amount that reflects the true intention of both parties.
  4. Q: What are the consequences if the employer uses the uninspected project without authorization? A: It will be considered that the project is qualified, the payment conditions are met, and the employer cannot use quality issues to refuse payment anymore, except for the quality of the foundation and the main structure.
  5. Q: How is the interest on overdue payments calculated? A: If there is an agreement, the interest shall be calculated according to the agreement. If there is no agreement, the interest can be calculated by referring to the one-year LPR of the same period, starting from the date on which the project payment is due until the date on which it is actually paid in full.