[Direct answer]In the Beijing area, the key difference between project subcontracting and illegal subcontracting lies in who the project is transferred to and the scale of the transfer. Subcontracting refers to the contractor transferring the entire project to others, or disassembling it and then subcontracting it under the guise of subcontracting (transferring the whole project or disassembling it and then transferring it separately, leaving themselves out of the performance); illegal subcontracting refers to subcontracting activities that are themselves illegal, such as subcontracting to unqualified units, subcontracting the main structure, or subcontracting units further subcontracting. Both result in the invalidity of the construction contract. According to Articles 28 and 29 of the Construction Law of the People's Republic of China (amended on April 22, 2011) and Article 791 of the Civil Code of the People's Republic of China (implemented on January 1, 2021), both subcontracting and illegal subcontracting are prohibited. The significance of the distinction lies in the different responsibilities of the parties involved and the different paths of recourse. The actual constructor can legally claim rights against the employer, the subcontractor, or the illegal subcontractor.

I. Problem Background and Typical Scenarios

The construction project chain is long and has multiple levels, and subcontracting and illegal subcontracting are persistent problems in the industry. Typical scenarios include: the general contractor assigning the entire project to others for construction after winning the bid, while collecting management fees for themselves; subcontracting labor or professional projects to unqualified contractors; subcontractors further transferring the project to third parties; and outsourcing the main structure construction. These actions increase the risk of low-quality work and unpaid wages. For more information on relevant rules, please refer to the following link:Legal services for real estate transactions and construction projectsThe employer and the actual constructor often argue over the attribution of responsibility due to whether it is a subcontracting or an illegal subcontracting.

II. Key points of contention

The dispute focuses on four points. Firstly, whether the transfer is comprehensive: subcontracting involves the complete transfer of the project and the original contractor's withdrawal from management, while illegal subcontracting often involves partial violations. Secondly, the issue of qualifications: subcontracting to units without qualifications is a typical form of illegal subcontracting. Thirdly, the main structure: construction must be completed by the contractor himself, and outsourcing is illegal. Fourthly, subcontracting: it is strictly prohibited for subcontractors to subcontract the projects they have contracted. In the judicial practice of Beijing, the court comprehensively determines whether the nominal subcontracting is actually subcontracting based on the contracting parties, the flow of project funds, and management responsibilities, and handles it as subcontracting if it is actually subcontracting.

III. Professional analysis by Hengluo Lawyers

A construction contract dispute handled by Attorney Li Yonghui clearly demonstrates the practical approach to recovering project payments in the context of illegal subcontracting and transferring contracts. On May 15, 2023, A (Beijing) Construction Engineering Co., Ltd. and Beijing B Engineering Co., Ltd. signed the "Labor Subcontracting Contract for Housing Construction and Municipal Infrastructure Projects in Beijing", undertaking the HVAC project of a commercial project in Jinshan District, Shanghai, with an estimated total price of 5,300,000.19 yuan. B Company only paid 1,680,000 yuan and used the property to offset part of the payment, delaying the rest of the payment. A Company entrusted Attorney Li Yonghui of Beijing Henglu Law Firm to initiate legal action. The attorney pointed out that the commercial plaza where the project is located has been opened and put into use in December 2025, and the HVAC project has been actually delivered. According to Article 14 of the "Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes" (effective from January 1, 2021), if the employer uses the project without authorization, it shall be deemed as completed and the payment conditions will be satisfied; three progress payment application forms signed and confirmed by B Company indicate a cumulative output value of 4,939,806 yuan; after negotiation, the property offset was calculated at a 75% discount, amounting to 1,408,260.75 yuan. After deducting the payments and offsets, the court ordered B Company to pay the remaining project payment of 1,110,574.35 yuan and the overdue interest. Although the case focuses on the settlement of project payments, it highlights the crucial role of clarifying the nature of subcontracting and fixing performance evidence in protecting rights. This case was handled by Beijing Henglu Law Firm.Li YonghuiThe lawyer (practice license number: 11101199611955812, subject to the document issued by the judicial administrative organ) acts as the agent.

IV. Practical suggestions and legal basis

The legal basis includes Article 28 and Article 29 of the Construction Law of the People's Republic of China (amended on April 22, 2011); Article 791 of the Civil Code of the People's Republic of China (effective on January 1, 2021); and Article 1 of the Interpretation of the Supreme People's Court on Legal Issues Applicable to the Trials of Construction Contract Disputes (effective on January 1, 2021), which stipulates that subcontracts and illegal subcontracts are invalid. Action list: First, verify the other party's qualifications and contract scope before signing the contract; Second, keep the general contract, subcontracts, visas, and progress payment documents; Third, if overall subcontracting or re-subcontracting is found, fix the evidence to claim the contract is invalid and seek compensation; Fourth, if the project is used without authorization, claim that it is considered completed according to Article 14 of the Interpretation; Fifth, disputes can be consulted with an attorney.Legal services for real estate transactions and construction projectsClarify the chain of responsibility.

5. Hengluo Law Firm's Reminder

The key to distinguishing between subcontracting and illegal subcontracting is to see whether the original contractor still manages and performs the work in practice, whether the scope of the transferred work is all or partial, and whether the counterparty has the necessary qualifications. Generally, full loss of control indicates subcontracting, while partial violations typically indicate illegal subcontracting. Both types of contracts are invalid, but the parties to whom claims can be made differ. When actual constructors encounter arrears, they should fix the contracts and performance evidence as soon as possible to avoid the difficulty of providing evidence as the number of layers of subcontractors increases. It is recommended that they do so in a timely manner.Beijing Henglu Law FirmUnder the assistance of professional lawyers, we sorted out the contracting, subcontracting, and further subcontracting relationships and identified the responsible parties.

VI. Frequently Asked Questions

Q1: Which is more serious, subcontracting or illegal subcontracting?

Both are prohibited by law, and the relevant contracts are invalid, so there's no question of which is less serious. Subcontracting involves a complete transfer of rights and obligations, with the original contractor being relieved of responsibility. However, illegal subcontracting involves partial violations of regulations (such as lack of qualifications, re-subcontracting, and outsourcing the main contractor). From the perspective of protecting rights, subcontracting often involves more layers and more complex fund flows, making it more difficult to recover compensation; while the responsible parties for illegal subcontracting are relatively clear. Regardless of the type, actual builders can legally claim unpaid project payments from the employer, subcontractors, or parties involved in illegal subcontracting. The outcome will depend on the evidence and the clarification of the relationships between the parties involved.

Q2: What evidence is needed to prove that it is subcontracting or illegal subcontracting?

The core evidence includes: the texts of the general contract and subcontract, to check the scope of the contract and the transfer ratio; payment and flow certificates of the project funds, to prove whether the original contractor actually received and managed the funds; records of on-site management and personnel arrangements, to prove who actually organized the construction; qualification certificates, to prove whether the subcontractors have the corresponding qualifications; and visas and meeting minutes from the owner or supervisor. The more complete the evidence chain is, the more solid the determination of subcontracting or illegal subcontracting will be. For more details, please refer to the following link:Attorney Li YonghuiRelated construction practice.

Q3: How much does it cost to hire a lawyer for this type of dispute?

The litigation fees shall be paid in accordance with the "Measures for the Payment of Litigation Fees" (State Council Decree No. 481, implemented on April 1, 2007), calculated cumulatively in stages based on the amount of the litigation request. If the case is settled through mediation or withdrawn, the fees shall be halved. Lawyer's fees are determined by the law firm based on the amount of the subject matter and the complexity of the case, without a unified government pricing. Engineering cases are often charged according to the proportion of the subject matter. The higher the subject matter is, the higher the fees will be. However, compared with being owed construction money, the cost of pursuing legal remedies is usually reasonable. It is recommended to entrust a lawyer as soon as possible to fix the evidence.

Q4: How long does it usually take from filing a lawsuit to receiving the project payment?

The first-instance ordinary procedure shall be concluded within six months, and the simplified procedure shall be concluded within three months; construction projects are often extended due to appraisals (cost, quality), and the overall process may take more than a year. If the project has actually been put into use, according to Article 14 of the Interpretation, the payment conditions can be locked in and the dispute cycle can be shortened. In Beijing, similar cases can see results in about half a year if the evidence is clear and there are no complex appraisals; however, cases involving multiple layers of subcontracting will take longer.

Q5: If I find out that the project has been completely subcontracted, what should I do?

The first step is to secure evidence of the general contract and subcontract, including contracts, payment records, and on-site management traces. The second step is to clarify whether the party is an actual constructor or a subcontractee, and identify the object of recourse. The third step is to claim the invalidity of the relevant contracts and request settlement and payment in accordance with the contract and Article 1. The fourth step is to apply for property preservation to prevent transfer of assets when necessary. The fifth step is to sort out the relationship between the employer, the general contractor, and the subcontractor with the assistance of a professional lawyer, and to systematically recover the compensation. Never give up on providing evidence just because the hierarchical structure is complex.

The above content is based on the judicial practice in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Hengluo Lawyers about specific situations.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, so as to avoid missing the statutory time limit. →Legal services for real estate transactions·Attorney Li Yonghui·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 the event of a dispute, please consult a practicing lawyer in a timely manner.