[Direct answer]In the Beijing area, contracts signed through illegal subcontracting and illegal division of contracts shall be deemed invalid according to law. According to Articles 28 and 29 of the Construction Law of the People's Republic of China, contractors are prohibited from subcontracting all the projects they have contracted, and illegal subcontracting is prohibited. Contracts that violate mandatory provisions are invalid according to Article 152 of the Civil Code of the People's Republic of China. However, the invalidity of the contract does not mean that the project payment cannot be claimed: if the construction project has passed the completion and acceptance inspection, the contractor may refer to the contract's provisions on the project price for compensation in the form of discount; the actual constructor may also claim rights within the scope of the employer's arrears in project payment according to relevant judicial interpretations. It is recommended to keep the contract, settlement documents, and acceptance materials. For more details, please refer to the following link:Real estate sales and construction project services.

1. Problem background and typical scenarios

Subcontracting and splitting projects in the construction industry are quite common. Typical scenarios include: the general contractor subcontracting the entire project to unqualified units or individuals after winning the bid; subcontracting the main structure; subcontractors further subcontracting at various levels; and disguising subcontracting as internal contracting or joint venturing. After many actual contractors complete the project with their own funds, the general contractor either refuses to pay by claiming that the contract is illegal and invalid, or defends against payment by citing "upstream non-payment". In practice, issues such as lack of qualifications, failure to conduct bidding and signing contracts, and unsigned settlement documents will all exacerbate the risks. Such chain-style disputes are highly prevalent in Beijing's housing construction and municipal projects. For cases involving project payment enforcement, the following factors can be taken into account:Creditor-debtor relations and enforcement case servicesFor matters involving contract review, you may refer to the following documents for reference:Business and contract dispute services for enterprises.

II. Key points of dispute

There are three main points of contention. Firstly, the validity of the contract: whether the contractor has the necessary qualifications, and whether there is a substantial subcontracting or illegal subcontracting, which determines the validity of the contract. Secondly, the settlement of project payments: if the contract is invalid but the project is qualified, the parties may refer to the agreed upon compensation through price adjustment. The settlement documents, visas, and acceptance certificates are the core basis for settlement. Thirdly, the subject of liability: whether the actual constructor can break through the contractual privity and claim the outstanding payments from the employer. The controversy also lies in whether "internal contracting" actually constitutes subcontracting. For cross-border projects, reference can be made to relevant provisions.Financial capital and cross-border services involving foreign affairsIf there is any quality damage involved, it can be addressed in conjunction with the relevant departments.Personal injury and medical dispute services.

III. Professional analysis by Henglue Lawyers

Based on the real estate and construction project cases handled by our firm, the determination of the contract's validity is a prerequisite for the recovery of project payments. Taking a housing sale dispute represented by Attorney Li Yonghui of our firm as an example: Company A, due to the need for loans by its affiliated company, signed a "Beijing City Second-hand Housing Sale Contract" in the name of employee Zhang * and "sold" a 262.05-square-meter house in Chaoyang District to Zhang * for a total price of 7.3374 million yuan. Zhang * transferred a mortgage loan of 4.4 million yuan to Company A. Later, Zhang * refused to cooperate with the transfer of ownership, and Company A sued to confirm the invalidity of the contract and return the house. The first-instance court dismissed the case due to insufficient evidence. Company A entrusted Attorney Li Yonghui of Beijing Henglu Law Firm to appeal, and the attorney accurately focused on the abnormalities of the transaction and the evidence chain, proving that the parties did not have a genuine purchase and sale agreement and that it was actually a loan in the name of others. The second-instance court reversed the first-instance judgment and ruled that the sale contract was invalid and the house was restored to Company A's name. 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. Although this case involves a house sale, it also shows that contracts that violate mandatory provisions and lack true intent are easily deemed invalid, and the integrity of the evidence chain determines the success or failure of the case. This principle is also crucial in disputes over the validity of subcontracting and sub-subcontracting.

IV. Practical suggestions and legal basis

The core basis is Article 28 (prohibiting subcontracting) and Article 29 (requiring subcontractors to be approved and prohibiting subcontracting and main contractors from subcontracting) of the Construction Law of the People's Republic of China (amended on April 22, 2011); Article 153 (invalidity of contracts violating mandatory provisions), Article 157 (consequences of invalidity), and Article 791 (prohibiting subcontracting and illegal subcontracting) of the Civil Code of the People's Republic of China (implemented on January 1, 2021); Article 1 (invalidity circumstances), Article 24 (invalid but qualified referencing compensation), and Article 43 (claims by actual constructors against employers) of the Interpretation of the Supreme People's Court on Legal Issues in the Trials of Construction Contract Disputes (implemented on January 1, 2021). Practical suggestions: Review the other party's qualifications and bid compliance before signing the contract; consolidate settlement documents, visas, and acceptance during construction; distinguish between contract validity and payment responsibility when facing arrears, and claim against the general contractor or employer within the scope of arrears according to law. For evidence organization, you can seek assistance from relevant professionals or institutions.Special services and other case services.

5. Henglu Law Firm's Reminder

In disputes over subcontracting and subcontracting, the "invalidity" of the contract does not mean that the work is done for nothing. If the project is qualified, the actual contractors can still claim compensation for the discount according to the agreement. Do not give up pursuing compensation just because you hear that the contract is invalid. However, prevention is better than cure: the contractors should avoid overall subcontracting and borrowing qualifications, and the subcontracting must be compliant and traceable. The actual contractors should obtain and keep the settlement invoices, delivery and acceptance certificates, and claim their rights in time to avoid prolonged disputes caused by upstream disputes. For those who refuse to pay downstream because of "the general contractor's failure to pay", they should review the contract's relativity and the confirmed project quantity. If it is necessary to clarify the validity and payment path, they can consult a lawyer as soon as possible.

VI. Frequently Asked Questions

Q1: Are subcontracts or contracts transferred in violation of the law necessarily invalid, and can I still recover the project payment?

Subcontracting and illegal subcontracting contracts that violate the mandatory provisions of the Construction Law shall be deemed invalid according to law. However, the invalidity of the contract does not mean that the project payment will be lost: if the construction project passes the completion acceptance, the contractor may be compensated at a discounted price in accordance with the contract's provisions on the project price; the actual constructor may also claim rights within the scope of the employer's unpaid project payment according to law. Therefore, even if the contract is invalid, as long as the project quality is qualified and you have settlement and acceptance evidence, you can still claim the corresponding payments. Whether you can get the money back depends on the project quality, settlement basis, and evidence, rather than the validity of the contract itself.

Q2: To recover the project payments for subcontracting and sub-contracting, what evidence do I need to prepare?

The core evidence includes: subcontracting or subcontracting agreements, internal economic agreements that prove the contractor's acceptance of the agreed unit price; project settlement documents, visa documents, and acceptance records that prove the project quantity and quality are qualified; delivery and construction progress information that proves the project has been completed; payment vouchers that prove the amount paid and the amount owed; and correspondence between the two parties and meeting minutes. The evidence should be organized around the three points: "the project has been completed and qualified by you - the price has been confirmed - the upstream party owes the payment". The more complete the materials are, the more solid the claim for discounted compensation according to the agreement will be, and it can avoid the other party refusing to pay on the grounds of not having completed the final settlement.

Q3: How much will it cost in legal fees and other expenses to litigate against contractors for unpaid project payments in subcontracting and sub-contracting projects?

The case acceptance fee shall be calculated in accordance with the "Measures for the Payment of Litigation Costs", based on the amount of the litigation request (the subject of the project payment), and shall be borne by the losing party. When the subject is large, the fee will increase accordingly. The attorney's fee depends on the complexity of the project and whether appraisal and evidence collection are required. It is usually charged on a per-case basis or a percentage of the subject amount, subject to the specific provisions of the engagement contract, with no uniform standard. For cases with clear settlement statements and clear arrears, the costs are relatively controllable; for cases requiring project cost appraisal and complex relationship chains, the workload will increase. It is recommended to clarify the fee charging method with the law firm before entrusting the case, and to use the budget for settlement and quality evidence collection.

Q4: How long does it usually take to resolve disputes over illegally subcontracted or sub-contracted project payments?

The first-instance ordinary procedure lasts six months, and the summary procedure lasts three months. Construction projects often apply the ordinary procedure and extend it due to the need for project cost appraisal. For settlement disputes with large amounts and the need for appraisal, it usually takes more than half a year overall; if it enters the second instance, it will take even longer. If the actual constructor claims against the employer, it may also involve adding additional parties. Overall, settlement documents and acceptance certificates are available faster; it takes longer to conduct appraisals and clarify the chain of responsibilities. It is recommended to claim promptly after delivery to avoid difficulties in enforcement caused by the upstream party absconding or evidence being lost.

Q5: If I find that the project payment has been illegally subcontracted and delayed, what should I do first?

It is recommended to follow four steps: First, stop continuing to advance funds to expand risks and immediately organize contracts, settlement statements, and construction evidence; Second, send a letter to the general contractor or subcontractor to demand the confirmed arrears and obtain a receipt; Third, verify whether the project has been accepted and the upstream (employer) has defaulted on payments, and determine the objects and scope of claims; Fourth, if no agreement is reached, promptly file a lawsuit and claim against the employer within the scope of the arrears in accordance with the law, and apply for property preservation when necessary. Never rely solely on verbal promises. Fixing evidence and preserving assets in accordance with the law can better guarantee the recovery of payments. If assistance is needed, please consult a lawyer as soon as possible.

The above answer is based on the judicial practice in Beijing. The judicial interpretations 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 relevant evidence 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 public 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.