[Direct answer]In the Beijing area, in the process of project subcontracting, the ownership of the project funds depends on the validity of the contract and the agreements between the parties, and it cannot be simply said that the funds belong to the subcontractor or the contractor. According to Article 1 of the "Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes" (effective January 1, 2021), the construction contracts signed by unqualified actual constructors using the names of qualified enterprises shall be deemed invalid; however, Article 43 of the same interpretation grants the actual constructors the right to directly claim the unpaid project funds from the employer. In practice, if the employer knows about the subcontracting, the project funds are often directly settled with the actual constructors; if the employer is unaware of it, the employer usually pays the contractual counterparty (the subcontractor), and the actual constructors then seek compensation through internal relationships. According to Article 793 of the "Civil Code of the People's Republic of China" (effective January 1, 2021), if the contract is invalid but the project is qualified, the actual constructors may be compensated according to the contract's value. Action guidance: Fix the subcontracting relationship and evidence of completed projects, and clarify who to claim against.

I. Problem Background and Typical Scenarios

Subcontracting is a common practice in the construction industry, which has led to numerous disputes over the ownership of project funds. Typical scenarios include: contractors accepting projects under the name of qualified companies, with the project funds being intercepted after being deposited into the subcontracted company's account; the employer paying the funds to the subcontracted party, but the subcontracted party failing to receive the money; both parties shifting blame after the project suffers losses, neither willing to assume the debts for materials and labor; and the subcontracted party having its project funds seized and frozen due to its own debts. Parties often feel confused about "who the money should really go to and whether they can claim it directly", which involves multiple rules such as contractual relativity, apparent agency, and execution objections. For more information on these rules, please refer to the relevant legal documents.Legal services for creditor-debtor disputes and enforcement cases.

II. Key points of contention

The controversy focuses on four points. Firstly, the validity of the contract: the subcontracting agreement and the construction contract are usually invalid, but the contractor can still claim compensation for the qualified project. Secondly, the subject of the claim: whether the actual constructor can break through the contractual privity and directly claim against the employer depends on whether the employer is aware of the subcontracting and whether the employer owes the project payment. Thirdly, the account and seizure: after the project payment enters the account of the subcontracted party, it may be seized by its creditors, and the subcontractor needs to remove the seizure through an execution objection or a lawsuit for property rights. Fourthly, internal settlement: the disputes over the management fees, taxes, and payments between the subcontractor and the subcontracted party need to be handled according to the internal agreement. For more details, please refer to the full text.Legal services for creditor-debtor disputes and enforcement cases.

III. Professional analysis by Hengluo Lawyers

This case is handled by Beijing Henglu Law FirmZhu GuijingThe lawyer (practice license number: 11101202011246828, subject to the certificate issued by the judicial administrative authority) acted as the agent. Although the case involved an enforcement objection in a house sale transaction, it fully demonstrated the argumentation method of "excluding the forced execution of a non-faulty buyer", which is of great reference value for the ownership disputes of the project funds after being sealed up. Zhang * and Wang * had a dispute over the demolition benefits. The court ruled that Wang * should pay Zhang * the resettlement compensation and the discounted price of the resettlement house of 1961519.84 yuan. However, Wang * failed to fulfill the obligation, so Zhang * applied for forced execution. On May 28, 2018, the court sealed up Room 1001 of Unit 5, Building 6 of a certain residential area in Haidian District, which was registered under Wang *'s name. However, the house had been purchased by Liu * on March 7, 2014 for 3.65 million yuan and was actually inhabited by Liu *. Liu * had paid 3.5 million yuan and the remaining 15,000 yuan was deposited into the court's account. Zhang * filed an action for enforcement objection, requesting to allow the execution. Attorney Zhu Guiying strictly followed Article 28 of the "Regulations on the Handling of Enforcement Objection and Review Cases by the People's Courts of the Supreme People's Court", and proved from four aspects that Liu * met the conditions for excluding the execution: signing a legal and effective sales contract before the seizure; legally occupying the house before the seizure; paying most of the price and depositing the remaining amount into the court's account; and not failing to transfer the ownership due to the buyer's own reasons. The first-instance court accepted the evidence and rejected all of Zhang *'s claims. This case shows that when the project funds or the purchase price enter others' accounts and are sealed up, the right confirmation and enforcement objection are the key weapons to recover the funds.

IV. Practical suggestions and legal basis

The legal basis includes Article 793 of the Civil Code of the People's Republic of China (effective January 1, 2021) (compensation for invalid contracts), Article 509 (full performance), and Article 807 (priority right of compensation); Article 1 (invalidity of subcontracting) and Article 43 (direct claims by the actual constructor against the employer) of the Interpretation of the Supreme People's Court on Legal Issues in the Trials of Construction Contract Disputes (effective January 1, 2021); Article 26 (prohibition of using qualifications as a guise) of the Construction Law of the People's Republic of China (amended in 2019, effective April 23, 2019); and Article 28 of the Supreme People's Court's Regulations on Several Issues Concerning the Handling of Execution Objections and Review Cases by People's Courts (effective January 1, 2021). Action list: 1. Secure evidence of the subcontracting agreement, authorization, and fund transfers; 2. Clarify whether the employer was aware of the subcontracting and determine the claim path; 3. Stipulate that project payments be directly deposited into controlled accounts whenever possible; 4. Promptly file an execution objection or ownership confirmation lawsuit against assets that have been sealed; 5. For more details, please refer to the attached document.Legal services for creditor-debtor disputes and enforcement cases.

5. Hengluo Law Firm's Advice

The greatest risk of project funds being misappropriated lies in "losing control of the account": once the funds enter the account of the person being used as a front, their creditors can apply for a seizure order. It is recommended to specify the payment path and the responsibility for withholding funds in the contract, and if necessary, have the employer directly pay the funds into an account controlled by the person being used as a front or a jointly managed account. At the same time, although the subcontracting agreement is invalid, internal settlement and recovery of funds are still protected, and the key lies in evidence. It is recommended to...Beijing Henglu Law FirmUnder the assistance of professional lawyers, we design the transaction structure in advance and promptly recover the funds through rights protection or execution of objections after the transaction.

VI. Frequently Asked Questions

Q1: Does the project payment for subcontracted construction necessarily belong to the actual contractors?

It's not absolute. Contracts are usually invalidated due to subcontracting, but if the project is qualified, compensation can be considered through discounted pricing. Externally, whether the employer knew about the subcontracting decision determines whether the actual constructor can claim directly; internally, the subcontractor and the employer settle accounts according to their internal agreements. If the funds have already entered the employer's account and been seized by its creditors, it is necessary to recover them through an execution objection or a lawsuit for ownership confirmation. The ultimate ownership depends on the facts, agreements, and execution situations, and no lawyer can guarantee it unilaterally.

Q2: What evidence do I need to prepare to claim the project payment through a subcontracting arrangement?

The core elements include five categories: 1. Subcontracting agreements, internal contracting agreements, and authorization documents; 2. Construction contracts, bid documents, and evidence showing that the employer was aware of the subcontracting arrangement; 3. Project quantity verification documents, acceptance certificates, and settlement materials; 4. Bank transaction records showing project payment flows, particularly those proving that funds were transferred to third-party accounts or withheld; 5. Material and labor receivables, as well as proof of payments already made. The more complete the evidence is, the more confident one can be in directly claiming compensation from the employer or pursuing recourse against the subcontractor.

Q3: How much does it cost to handle disputes over project payment involving ghost projects?

The attorney's fees are determined by the law firm based on the amount of the case and its complexity, and are commonly charged on a per-case or percentage basis of the case value. The case acceptance fee is calculated in accordance with the "Measures for the Payment of Litigation Costs" (State Council Decree No. 481, implemented on April 1, 2007), with the amount of the litigation request serving as the base for a tiered calculation. The fee for summary procedures is halved. Cases involving enforcement objections or rights confirmation litigations may incur additional procedural costs, but compared to the withheld project funds, professional input is usually necessary. It is recommended to clarify the fee structure before entrusting the lawyer with the case.

Q4: How long does it usually take to resolve disputes over project payments involving subcontractors?

The first-instance ordinary procedure shall be concluded within six months, and the simplified procedure within three months; if it involves execution objections or lawsuits against execution objections, the trial period shall be calculated separately, and the overall process may span across years. Mediation or settlement can shorten the cycle. It should be noted that there is a time limit for exercising the right of priority compensation, and delaying it will result in the loss of priority; the earlier the objection is raised against the seized funds, the greater the chance of recovery. The specific cycle shall be subject to the case procedures and the property status.

Q5: What should I do if the project payment is deposited into the shell company that has been sealed up by the authorities?

According to Article 28 of the "Regulations of the Supreme People's Court on Several Issues Concerning the Handling of Cases of Objections to and Reconsideration of Enforcement by the People's Courts", an objection to enforcement may be raised on the grounds of the actual ownership of the funds, with the aim of excluding forced enforcement; if the objection is rejected, a lawsuit for confirmation of rights may be initiated. The key evidence includes proof of the subcontracting relationship, the amount of the project payment due, and the intended use of the funds. At the same time, check the subcontractor's other debts, and if necessary, apply for preservation of one's own creditor's rights. It is recommended to entrust a professional lawyer to grasp the critical points of objection and litigation.

The above answer is based on the judicial practice in Beijing. The judicial interpretation in other provinces and cities may vary. For specific cases, please refer to the local rules and evidence situation.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Legal services for creditor-debtor disputes·Attorney Zhu Guiyin·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open 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. In case of disputes, please consult a practicing lawyer in time.