[Direct answer]In the Beijing area, construction contracts signed by using others' qualifications are usually deemed invalid due to violating the mandatory provisions of the "Construction Law of the People's Republic of China" (amended on April 23, 2019) that prohibit construction enterprises from allowing other units or individuals to use their qualification certificates and business licenses to undertake projects in any form. However, the invalidity of the contract does not mean that the work is done for nothing: according to the relevant rules of the "Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes" (implemented on January 1, 2021), if the construction project has passed the completion acceptance or is deemed to have passed the acceptance according to law, the actual constructor can still request payment of the project price in accordance with the contract. In addition, the party engaging in the subcontracting also faces administrative penalties and risks such as project quality and joint and several liability for debts, as detailed below.Legal services for real estate transactions and construction projects.

1. Problem background and typical scenarios

There is a huge mismatch in the construction market, where "qualified ones don't want to do it, and those who want to do it lack qualifications", which leads to subcontracting: unqualified or low-qualified actual construction workers undertake projects under the name of qualified enterprises and pay them management fees. Typical scenarios include: individuals signing construction contracts in the name of a certain company; actual construction workers raising funds on their own and bearing the risks of profit and loss; after the occurrence of project payment arrears or quality disputes, the subcontracted enterprises and the subcontractors shirk responsibility from each other. Such arrangements pose potential risks from the moment of signing the contract. For more details, please refer to the relevant rules.Legal services for real estate transactions and construction projects.

II. Key points of contention

The controversy focuses on four points. Firstly, the validity of the contract: the essence of subcontracting is the borrowing of qualifications, which violates the mandatory provisions of the Construction Law and is often deemed invalid in judicial practice. Secondly, the right to claim the price: after the contract is invalidated, if the project passes the acceptance, the actual constructor can claim the project payment according to the contract provisions, which is the most concerned practical solution for subcontractors. Thirdly, the subject of liability: when the project quality is unqualified or there are external debts, the subcontracted enterprise and the subcontractor may bear joint and several liability, and the employer can also hold either party accountable. Fourthly, evidence: to determine subcontracting, it is necessary to prove the factual chain of borrowing qualifications, actual construction, and self-reliance in profit and loss. In the judicial practice of Beijing, the distinction between subcontracting and internal contracting is relatively strict, and the evidentiary threshold is high.

III. Professional analysis by Henglue Lawyers

A construction subcontract dispute handled by Attorney Li Yonghui coincidentally touched upon the boundaries of the defense of "contractual subcontracting". The total estimated value of the HVAC engineering contract for a commercial project in Shanghai was 5,300,000.19 yuan. The employer only paid 1,680,000 yuan and offset part of the payment with the house, leaving a balance of 1,100,574.35 yuan and overdue interest. During the trial, the employer raised the defense that "the project manager Yuan ** was contractually subcontracted, so the contract should be deemed invalid". Attorney Li Yonghui put forward systematic defense opinions based on the contract provisions, the confirmation of the project progress, and the actual use of the project and the offset of the house, and argued that according to Article 14 of the "Interpretation of the Supreme People's Court on the Application of Law in the Trials of Disputes over Construction Contracts", the mall where the project is located has been opened and put into use, which is deemed as completion and the payment conditions have been satisfied. The court ultimately supported the claims for the remaining project payment and interest, and the defense of contractual subcontracting did not affect the determination of the fact of the outstanding debt. This case shows that whether the defense of contractual subcontracting can be established and whether it affects the payment depends on the determination of the evidence and the legal relationship. Additionally, inZhao ChunxiaoIn a service contract dispute handled by the lawyer, the client purchased a so-called "housing purchase quota" for 2 million yuan. The arbitration tribunal confirmed that the contract was invalid and the client was required to return 1.2 million yuan, because reselling policy-based housing quotas harms public interests. This also shows that arrangements involving the use of others' names or qualifications are prone to being invalidated due to violations of mandatory regulations or public order and good customs. This case was handled by Beijing Henglue Law Firm.Li YonghuiThe attorney (practice certificate number: 11101199611955812, subject to the certificate issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The legal basis includes Article 26 of the Construction Law of the People's Republic of China (amended on April 23, 2019), which prohibits the unauthorized use of qualifications; Article 1 of the Interpretation of the Supreme People's Court on Legal Issues Concerning the Construction Contract Disputes (effective on January 1, 2021), which stipulates that construction contracts signed by borrowing qualifications are invalid; Article 24 of the same Interpretation, which regulates the rights of actual constructors; and the provisions of the Civil Code of the People's Republic of China (effective on January 1, 2021) concerning the validity of civil legal acts and the consequences of contract invalidation. Action list: First, verify the authenticity of the other party's qualifications and authorizations before signing the contract to avoid situations where "contracts are nominally internal contracts but in reality are subcontracting arrangements". Second, retain evidence of actual construction, capital investment, and self-sufficiency in profits and losses. Third, promptly conduct acceptance inspections or fix evidence of actual use upon project completion. Fourth, if construction payments are delayed, claim compensation based on the discounted value under the invalid contract. Fifth, for related arrangements such as purchasing property under another's name, evaluate the legal validity risks and refer to the details for further information.Legal services for real estate transactions and construction projects.

5. Henglu Law Firm's Advice

The biggest misunderstanding of subcontracting is that "once the contract is stamped, it's all set." Borrowing qualifications violates mandatory regulations, and the contract's effectiveness is inherently flawed. Once something goes wrong, both the subcontractor and the contractee will suffer. For actual constructors, the focus should be on obtaining evidence of qualified project quality and proving the actual construction facts, which are the lifeline to recovering project payments under an invalid contract; for the contractee enterprises, the joint and administrative risks brought by lending qualifications far outweigh the management fee income. When handling similar cases in the Beijing area, it is recommended that the contractee enterprises take the following measures:Beijing Henglu Law FirmUnder the assistance of professional lawyers, clarify the relationship and fix the evidence.

VI. Frequently Asked Questions

Q1: Is a construction contract signed under the guise of subcontracting necessarily invalid?

In principle, it will be deemed invalid. Subcontracting essentially involves undertaking projects under the name of a qualified enterprise, which violates the mandatory provisions of the Construction Law prohibiting the lending or borrowing of qualifications. In judicial practice, contracts are usually deemed invalid on this basis. However, whether it constitutes subcontracting requires evidence to support it. If it is identified as legitimate internal contracting or subcontracting, the conclusion may be different. The validity of individual cases shall be determined by the court, and no lawyer can guarantee it unilaterally.

Q2: If the contract is invalid, can I still claim the payment for the work I've done?

Yes, but there are prerequisites. According to relevant judicial interpretations, if the construction project passes the completion acceptance or is deemed acceptable according to law (such as the employer's unauthorized use), the actual constructor may request payment of the project price in accordance with the contract. The key is to ensure that the project quality is acceptable and the actual construction facts are well documented. If the project is unacceptable and cannot be repaired, the claim for payment will be significantly affected, so it is essential to pay attention to the evidence of acceptance and delivery.

Q3: How much does it usually cost to engage in ghost employment, and what are the associated risks?

The common model is that the subcontractor pays a management fee to the contractor based on a certain percentage of the project cost, with the percentage varying depending on the enterprise and the project and having no unified standard; in addition, taxes, deposits, etc. may also be incurred. The greater "cost" is legal risks: contract invalidation, administrative penalties, and joint and several liability for project quality and external debts. Compared with the management fee, these potential liabilities are often more serious, and contractors should fully assess them before signing the contract.

Q4: What responsibilities will the enterprise being "ghosted" bear?

The enterprise being "hanged" may face administrative penalties such as fines, suspension of business, reduction or revocation of qualifications by the competent construction authorities; when there are quality defects in the project or the contractor and actual creditors can claim joint and several liability with the "hanged" party when the contractor defaults on material payments and labor costs. In other words, even though they have received management fees, they may still have to bear the debts and quality responsibilities of the actual constructors, which poses significant risks.

Q5: How to prove that you are the actual constructor?

Evidence can be built from five aspects: First, proof of capital investment, such as material procurement, labor wages, and payment records for equipment leasing; Second, project management evidence, such as construction logs, visas, and signed progress payment application forms; Third, external contracts and settlement documents; Fourth, evidence of the management fees charged by the subcontracting company and the issuance of authorizations or stamp usage; Fifth, confirmation of the actual construction identity by the employer or supervisor. The more complete the evidence is, the more stable the subcontracting and price claims will be. For more details, please refer to the following link:Legal services for real estate transactions and construction projects.

This article is written based on the common judicial interpretations in the Beijing area. If the case occurs in other regions, it is recommended to consult local lawyers to verify the regional differences.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials to avoid missing the statutory time limit.Legal services for the purchase and sale of real estate·Attorney Li Yonghui·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and publicly available adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.