Annual Review on Construction Dispute Resolution in China (2020) (Part 3)——PRATICAL AND ACADEMIC FOCUS

 PRATICAL AND ACADEMIC FOCUS

1. The Effect of COVID-19 on the Performance of Construction Contracts and the Framework Principles for Risk Allocation

On 20 January 2020, COVID-19 was officially classified as Category B infectious disease as prescribed in the Law of the People's Republic of China on the Prevention and Treatment of Infectious Diseases, and the State took measures to prevent Category A infectious diseases. On 31 January 2020, the World Health Organization (WHO) declared that the outbreak of COVID-19 has constituted a public health emergency of international concern.

In order to prevent and control COVID-19, the local governments in China have taken a series of administrative measures, such as segregation, city lockdown, traffic control, extension of holidays and prohibition of early resumption of work. These administrative measures play an important role in the prevention and control of the epidemic, while make inevitable effect on various industries. In particular, the effect of COVID-19 is remarkable in the field of construction with high concentration of manpower, building materials and equipment. Against this backdrop, COVID-19's effect on the performance of construction contracts and potential dispute resolution has quickly become a hot issue in construction and legal community. 

1.1 Types of COVID-19's Effect on the Performance of Construction Contracts

The effect of COVID-19 on the performance of construction contracts is various, and legal remedies and risk allocation mechanism is also different according to different consequences of impact. In view of this, prior to further in-depth analysis, we divide the possible COVID-19's effect and consequence into five categories:

Category I: Delay

The administrative measures taken to prevent and control COVID-19 result in delays. First, the government directly requires to delay the return to work or suspend the work. Second, the construction project is suspended or delayed due to the shortage of manpower, construction materials and equipment resulting from the traffic control, isolation of epidemic areas, shutdown of enterprises, etc.

As for overseas projects, the causes of delay are more diverse, such as shortage of workers as a result of restrictions, including visa denials, entry quarantine, and quarantine observation, on Chinese citizens imposed by the government of host country, and delays in delivery of materials and equipment procured in China due to production halt, logistics difficulties, and customs quarantine measures.

Category II: Additional Costs Due to Suspension and Deferral

Additional costs will be incurred for suspended or deferred construction due to administrative measures taken to prevent and control COVID-19, which are primarily of two types: First, the additional time-related costs or expenses incurred during the delay period due to suspended or deferred construction – from the point of view of the contractor, this is generally referred to as Prolongation Costs, such as labor costs, rental or amortization costs of revolving materials and machinery, depreciation costs, site management fees (related to time), headquarter management fees (note: the composition of construction costs varies with different pricing rules); second, the additional costs arising from disruptions such as epidemic prevention measures taken on the site or living quarters, which lowers the working efficiency - generally referred to as Disruption Costs.

Category III: Epidemic Prevention Costs

During the period of outbreak, the expenses for epidemic protection possibly incurred to the contractor include the expenses for relevant additional measures and projects such as necessary management personnel at post, sterilization of the site and office & living areas, epidemic protection publicity and education, purchase and storage of epidemic protection materials.

Category IV: Rise in Price Factors

If the shortages of manpower and materials occur continuously due to the administrative measures for epidemic prevention and control, price factors such as labor, materials, equipment and machinery may increase due to the impact of market supply and demand, which may further increase the performance costs of the contractors.

Category V: Acceleration Costs

If the epidemic results in delays and the project employer requests acceleration of work on the basis of economic benefits or other reasons, the additional costs of such acceleration will be incurred.

1.2 COVID-19, Force Majeure and Change of Circumstances in the Context of Construction Contract Performance

There are mainly two types of basis for the handling of the consequences of COVID-19: (1) contractual stipulations; and (2) laws. Under Chinese law, the main legal principles related to the outbreak of COVID-19 are force majeure and change of circumstances.

By taking the judicial practices in relation to SARS as a reference, in the Notice on Doing Well According to Law in Trial and Enforcement by People's Courts During the Period of Prevention and Treatment of SARS (hereinafter referred to as "SARS Notice") released on 11 June 2003, the SPC mentioned that if the performance of original contracts affected the rights and interests of one party due to SARS in contract dispute cases, the principle of fairness could be applied according to the specific circumstances; if the contracts could not be performed caused by the direct impact of administrative measures taken by the governments and related departments for the prevention and treatment of the SARS , or the disputes arose from fundamental failure to perform the contract by the parties as a result of SARS, it should be handled properly in accordance with the provisions of Articles 117 and 118 of the Contract Law. Although the SARS Notice has been revoked, with respect to the contract dispute cases as the result of SARS, the idea that applying the principle of fairness and force majeure respectively according to the impact and consequences of the epidemic, which could stand the test of practice.

(1) Whether the Outbreak of COVID-19 Constitutes Force Majeure

In the field of construction, the delay in performance of such contracts caused by the administrative measures taken to prevent and control COVID-19 has occurred, which makes it possible to discuss whether COVID-19 constitutes force majeure. At present, there is little disagreement about whether the outbreak of COVID-19 is in conformity with the definition of force majeure under Chinese law. Even though there is disagreement, it focuses more on how to accurately understand and apply various stipulations and statutory exemption conditions of force majeure, such as the demonstration of causation, whether the breaching party has fulfilled the obligation of notification, proof obligation, and loss mitigation obligation, etc.

(2) Whether the Outbreak of COVID-19 Constitutes Change of Circumstances

Although Article 26 of the Interpretation II of the SPC of Several Issues concerning the Application of the Contract Law of the People's Republic of China adopted in 2009 establishes the doctrine of change of circumstances based on the principle of fairness. In order to avoid abusing of change of circumstances, the SPC requires apply this doctrine prudently; if it is necessary to apply the doctrine, it shall be reviewed by a higher people's court, and be reported to the SPC for review if necessary.1

Considering in the context of the performance of construction contracts, change of circumstances is shown in the abnormal rise of price factors. Compared with the controversial issue of proving whether the impact of COVID-19 may constitute change of circumstances and whether the parties concerned have the right to claim changing or terminating a contract, it is obvious that the relevant trial practices of construction contract disputes caused by abnormal rise of price factors in the construction field in China appear more abundant. Therefore, we believe that if such disputes occur in the future, the parties and adjudication institutions can focus more on the risk allocation rules of abnormal rising of price factors.

(3) Risk Allocation Mechanism of Consequences of the Outbreak of COVID-19 on the Performance of Construction Contracts

Category I: Delay

In view of force majeure is a statutory exemption cause and most of the EPC standard forms treat force majeure as the excuse for extension of time, the contractor shall be entitled to claim for extension of time on the ground of force majeure when the adoption of administrative measures to prevent and control COVID-19 causes the delays (the causality must be proven). However, whether the contractor can obtain the extension of time shall also require the contractor to pay attention to its performance of the agreed or statutory notification, proof, and mitigation obligations.

It should be noted that Article 117 of the Contract Law in China provides that "where force majeure occurs after the party has been delayed in performance, the liability shall not be exempted". With respect to the performance of construction contracts, if construed in terms of words only of that rule, it is relatively easy to interpret such provision as follows: If the contractor has been delayed in completion before the occurrence of COVID-19 and the delayed period before completion is affected by COVID-19, the contractor cannot claim extension of time by arguing that the outbreak of COVID-19 constitutes force majeure. In this regard, we believe that based on the characteristics of the performance of construction contracts, it is not appropriate to make this simple conclusion. For instance, the contractor is affected by a force majeure event only one day after the completion date is delayed and the event causes a delay of 100 days in succession. If the contractor's delay is eliminated at the time of the occurrence of such force majeure event, i.e. such force majeure event is the sole cause of delay for 100 days, according to the aforementioned interpretation, the contractor will be liable for a total of 101 days of delay on account of only one day's delay. The breach of contract and its consequences seem plainly out of balance. In regard of this, we deem it necessary to make a reasonable explanation of the above-mentioned provisions which are more consistent with the performance characteristics of construction contracts, that is, the contractor cannot claim for extension of time during the period when there is concurrent delay with the force majeure event; however, if the contractor's delay event ends, i.e. the force majeure event is the sole cause of subsequent delay period, the force majeure event shall still work as a cause for extension of time. In short, for the performance of construction contracts, a more reasonable interpretation of "after the party has been delayed in performance" shall be the period of continuous delay after the party has been delayed in performance.

Category II: Additional Costs Due to Suspension and Deferral

Currently, the laws, administrative regulations and relevant judicial interpretations of the SPC do not clearly stipulate the risk allocation principles of losses of the suspension and deferral costs of the construction projects due to force majeure events. Although Paragraph 5, Article 15 of the Project General Contracting Management Measures makes "change in construction cost and construction period caused by force majeure" as a risk burdened by project developers. However, as mentioned above, this regulation, as a department regulation, has a relatively low level of validity.

In this context, the principles for risk allocation of such losses will mainly depend on the contract stipulations. If there is no provision or clear provision in the contracts, pursuant to Article 612 of the Contract Law, the standard forms for construction projects and pricing rules promulgated by the State can work as trade practices, such as the 2017 Construction Projects Contracts (Standard Form) and the 2013 Pricing Rules for Bill of Quantity of Construction Projects, under which disputes may be settled in accordance with the risk allocation principles. The details will not be elaborated owing to space reasons.

Of course, it is controversial in practice as to whether such standard forms or pricing rules can be taken as trade practices for construction contracts. Under such circumstance, the rules in the Project General Contracting Management Measures regarding making force majeure as risks burdened by the project developers may serve as the basis to further strengthen being identified as a trade practice.

Category III: Additional epidemic prevention costs

Similar to the Category II losses, with respect to the risk allocation principle for this type of losses, the existing laws in China have no clear provisions, and it mainly depends on the contract. Where there is no provision or no clear provision in a contract, risk allocation may be made by adopting a standard form or pricing rule as a trade practice. Under the circumstance that there is no direct stipulation in the standard form or pricing rule, the method for allocation of additional costs may be determined as the result of change in laws or government regulations after the base date.

Category IV: Rise in Price Factors

With respect to construction price disputes arising from such risks, the mainstream development trend in judicial practice is: where the agreement clearly stipulates on the risk-bearing of the price changes, the contractual agreements shall be followed; in the absence of an agreement or explicit agreement, for example, stipulating the fixed price regime in a general way but without specifying the scope and magnitude of the market risk, where the price of manpower or construction materials has undergone significant changes, the guidelines on handling the construction materials price difference issued by the construction administrative authority where the project is located may constitute the basis of defining the normal market risk and applying the doctrine of change of circumstances or not by adjudication institutions.3

Category V: Acceleration Costs Increasing

Under the circumstance that the contractor is entitled to extensions of time, unless the contract provides otherwise, the employer shall have no right to unilaterally request the contractor to shorten the construction period (including the extensions of time). Even if the contractor agrees on the acceleration, the parties shall reach an agreement through variation on the consequences of such variation including the acceleration costs. If the contractor accelerates the work in advance due to emergency or other reasons, the contractor shall also have the right to claim acceleration costs against the employer on the ground of constituting variations.

2. EPC Projects: "Dual Qualifications" Requirements for EPC Contractors

Article 10 of the Project General Contracting Management Measures provides that "the EPC contractor shall have the engineering qualification and construction qualification at the same time corresponding to the scale of the project, or a consortium shall be formed by engineering entity and construction entity with the corresponding qualifications." This means that, in the area of civil construction and municipal infrastructure construction (other construction areas are not clear yet), the EPC contractor must have the "dual qualifications" for engineering and construction. Otherwise it can only adopt the form of consortium. This regulation fundamentally changes the market access requirement that the EPC contractor only needs the "single qualification" of engineering or construction, which will have a far-reaching impact on the core risk characteristics and dispute resolution of the EPC contracts.

2.1 Issues Relating to the Qualification of Engineering Entity

The qualification of the EPC contractor will directly affect the validity of the EPC contract. In a case, the SPC for the first time confirmed that the Qualification Standards for Engineering issued by the MOHURD could be used as the legal basis for the market access of EPC contracting.

Since the exploration and practice of EPC contracting from the 1980s in China, the EPC mode in petroleum, chemical, building materials, electric, new energy and other industrial construction fields has started earlier and developed more mature than that in civil building, municipal works, water conservancy, transportation infrastructure and other fields. Industrial EPC projects usually take engineering as the lead, and engineering entity acting as the EPC contractor is the leading mode, which is fully reflected by the guidance issued by the MOHURD.

In the field of industrial construction projects, due to the fact that engineering entities owing both engineering and construction qualifications are in a minority, the "dual qualifications" requirement for engineering and construction in the Project General Contracting Management Measures may adversely affect the existing balance and development in this field based on the intrinsic drive of the long-term market, by applying to the EPC contracting practices in the field of industrial construction mandatorily or by reference.

In this regard, although Article 12 of the Project General Contracting Management Measures has designed a "fast path" for engineering and construction entities to apply for dual qualifications, that is, "entities that have obtained Integrated Qualification for Engineering, Grade A Qualification for Industry or Grade A Qualification for Professional Construction may directly apply for Grade A qualification of the corresponding type for EPC Contracting", "entities with Grade A or above EPC contracting qualification may directly apply for Grade A qualification of the corresponding type of engineering", and "the credentials for completed large-scale projects may be declared as engineering and construction credentials", the actual efficiency and effects of this system in practice are yet to be observed and tested in practice.

2.2 Joint and Several Liability of Consortium Members

In the absence of "dual qualifications", engineering or construction entity can only form a consortium to undertake the EPC businesses. However, through the "qualification" rather than "resource" as a link to the formation of the engineering and construction consortium, it is more likely to invite difficult disputes because of the lack of cooperation basis. The following is a brief analysis of several types of problems that are still unsettled in practice.

(1) The Joint and Several Liability of the Consortium Members to the Employer

Article 27 of the Construction Law stipulates that "all the undertaking parties shall bear joint and several liability for performing the contract". Obviously, it is no objection in law regarding joint and several liability of the consortium members to the employer.

In the EPC projects with "construction-led", the previous "single qualification" system allows engineering entity to be the engineering subcontractor, which only bears relatively limited joint and several liabilities with the EPC contractor to the employer for the scope stipulated in its engineering subcontract. However, under the "dual qualifications" system, a single qualified construction entity will have to request the engineering entity to form a consortium with it and jointly and severally assume liability to the employer. In such circumstance, if the engineering entity's share in the consortium agreement is limited to the engineering fee, its limited interests will likely be seriously unbalanced compared with the risk of joint and several liability.

(2) Joint and Several Liability of Consortium Members to Suppliers or Subcontractors

If only one of the consortium members, normally the leader, signs a supply or subcontracting agreement, shall the other consortium members be jointly and severally liable for the performance of such agreements? The identification of this issue in judicial practice is quite complicated, and results-based approaches can be summarized into two broad categories:

First, joint and several liability shall be borne. The basis may be relied on the performance of the supply or subcontracting contract is an act of performing the undertaking contract specified in Article 27 of the Construction Law, or the provisions regarding bearing joint and several liability by contractual joint ventures specified Article 52 of the General Principles of the Civil Law. However, it shall also be identified that the lead party represents the consortium by referring to the consortium agreement, and the rights and obligations rest on the consortium for the subcontracting or supply contract.

Second, joint and several liability shall not be borne. The main reason is based on the principle of privity of contract, which determines that other members of the consortium are not the parties to the subcontracting or supply contract and that the stipulations in the consortium agreement on bearing joint and several liability by the consortium members shall not be extended to the third party.

Based on the analysis, summary and critical thinking of the relevant details of the above cases, we think that the basic principles for correctly handling of such disputes should be:

First of all, with respect to Article 27 of the Construction Law under which "all the undertaking parties shall bear joint and several liability for performing the contract", the beneficial party of joint and several liability for “the performance of the contract" shall be the employer, instead of expanding the interpretation to include any other parties relating to "performance of the contract". Therefore, Article 31 of the Bidding Law has clearly stipulated that all parties to a consortium shall assume joint and several liability to “the bid inviter" for the awarded project.

Second, based on the principle of privity of contract, due to other members of the consortium are not parties to a subcontracting or supply contract, the subcontracting or supply contract shall be binding only on the members of the consortium and subcontractor (or supplier) that executed the agreement.

However, it should be noted that the application of the principle of privity of contract subject to the possibility of statutory exceptions. Pursuant to Article 524 of the General Principles of Civil Law, even if other members of the consortium are not the parties to the subcontracting or supply contract, they shall bear joint and several liability to the subcontractor or supplier based on the laws or stipulations in the consortium agreement. With respect to the laws, based on the aforesaid analysis of Article 27 of the Construction Law, there is no explicit legal provision that all parties to a consortium shall bear joint and several liability to its subcontractor or supplier. Therefore, the stipulations of the consortium agreement will become the basis to judge whether each party of the consortium agreement shall bear the joint and several liability to the subcontractor or supplier. In our opinion, if the consortium agreement itself expressly provides that the consortium parties shall be jointly and severally liable to the subcontractor or supplier, and one of the consortium members has become liable to the subcontractor or supplier, under Article 52 of the General Principles of the Civil Law, the fact that the others not executing the subcontracting or supply contract may also be impossible to deny its joint and several liability as a consortium member on the ground of the principle of privity of contract.

3. Relationship between PPP Agreement and Administrative Agreement, and the Arbitrability of PPP Agreement

Article 26 of the Judicial Interpretations on Administrative Agreements provides that: "Where an arbitration clause is stipulated in an administrative agreement, the people's court shall confirm that the clause is invalid, except as otherwise stipulated by laws, administrative regulations or international treaties concluded or acceded to by our country."

The above provision causes quite a stir in the PPP community and the arbitration community as it will mean that, except in specific circumstances, the validity of arbitration clause of the PPP Agreement will depend on whether the PPP Agreement is an administrative agreement. If the PPP Agreement is not an administrative agreement but a civil contract, the validity of its arbitration clause will be determined in accordance with the Arbitration Law of the PRC (hereinafter referred to as the "Arbitration Law") and the parties to the PPP Agreement may settle the disputes by arbitration in accordance with the valid arbitration clause; otherwise, if the PPP Agreement belongs to an administrative agreement, the arbitration clause will be invalid and the corresponding PPP Agreement will no longer be arbitrable in accordance with Article 26 of the Judicial Interpretations on Administrative Agreements. In view of this, to determine whether PPP Agreements are arbitrable depends on whether PPP Agreements are administrative agreements.

3.1 The Judicial Interpretations on Administrative Agreements Does Not Identify All PPP Agreements as Administrative Agreements

Article 1 of the Judicial Interpretations on Administrative Agreements provides that: "an agreement containing rights and obligations under the administrative law entered into between administrative agencies and citizens, legal persons or other organizations through consultation for the purpose of achieving administrative management or public service objectives by administrative agencies shall be an administrative agreement as prescribed in Item 11, Paragraph 1, Article 12 of the Administrative Procedure Law." Article 2 further enumerates six types of administrative agreements, namely: (1) government concession agreement; (2) compensation agreements on taking and requisition of land, houses and others; (3) assignment agreements on mining rights and other state-owned natural resources using rights; (4) leasing and purchasing agreements on government-invested indemnificatory housing; (5) agreements on public-private partnership (PPP) that comply with Article 1 hereof; and (6) other administrative agreements."

Among them, only the PPP Agreement in the fifth type is limited to "complying with the provisions of Article 1 hereof", which means that not all PPP Agreements are administrative agreements. Except for the concession agreements in the first type expressly stated as administrative agreements, for the PPP Agreements of other types, only those in compliance with the provisions of Article 1 hereof can be treated as administrative agreements.

In this regard, the statement made by Liang Fengyun, the Deputy Director of the SPC Administrative Tribunal, at the press conference of the Judicial Interpretations on Administrative Agreements, can be taken as the supporting basis:5 "PPP Agreements generally exist as a form of contract suite, which in many cases are shown as administrative agreements, but in some cases are civil contracts. Therefore, it is expressly provided in the Judicial Interpretation that the PPP Agreements that comply with the definition of the administrative agreement prescribed in this Judicial Interpretation shall belong to the administrative agreement."

3.2 The Contracts in the PPP "Contract Suite" That Are Not Administrative Agreements

As previously discussed, PPP Agreements usually exist in the form of "contract suite", whose contract systems mainly including project contract, shareholder contract, financing contract, construction contract, O&M contract, material supply contract, product procurement contract, insurance contracts and so on.6

First, according to the definition in Article 1 of the Judicial Interpretations on Administrative Agreements, in PPP contract suite, contracts to which the government usually is not a party, such as shareholder contract, financing contract, construction contract, O&M contract, material supply contract, product procurement contract, insurance contract, and so on, shall not be deemed as an administrative agreement but a civil contract, which shall be arbitrable.

The next central question: do the contracts, to which the government is a party, necessarily belong to the administrative agreements? This shall be determined according to the four elements of an administrative agreement as prescribed in Article 1 of the Judicial Interpretations on Administrative Agreements. According to the statement of Huang Yongwei, Director of the SPC Administrative Trial Tribunal, on the press conference of the Judicial Interpretations on Administrative Agreements, the four elements of an administrative agreement include: (1) the subject element, in which one party must be an administrative agency; (2) the objective element, in which the agreement must be for achieving the goal of administrative management or public service; (3) the content element, in which the agreement must contain rights and obligations created by the administrative laws; and (4) the intent element, in which the parties to the agreement must reach a consensus through consultation.7 Among them, "subject element", "objective element" and "intent element" are not exclusive to administrative agreements because civil contracts can also have the above three elements under certain conditions, for example, government procurement contracts under the Government Procurement Law of the People's Republic of China（hereinafter referred to as the “Government Procurement Law”）.8

Therefore, the key to distinguish an administrative agreement lies in its "content element", i.e. "must containing rights and obligations created by the administrative laws". In this regard, he SPC comprehensively discussed in a case that: "Rights and obligations created by the administrative laws can be judged from the following three aspects: first, whether the administrative functions and duties are exercised or performed; second, whether the administrative management objectives or public interests are achieved; third, whether the agreement or the laws stipulate the right of priority to benefit the administrative agencies. In particular, the exercise of administrative functions and the performance of administrative duties, and the right of priority to benefit the administrative agencies constitute the subject matter and content of an administrative agreement. When it is unable to judge whether belonging to the above-said subject matter or content, a judgment may be made in combination with the objective element of "realizing public interests or administrative management objectives". From the point of view of the functions, exercising administrative functions and performing administrative duties is the essential element. As long as such element is satisfied, the agreement concerned shall be an administrative agreement, while the realization of public interests or administrative management objectives, and the right of priority to benefit the administrative agencies, shall be auxiliary elements for determining whether or not to exercise administrative functions." Therefore, if the PPP contract entered into by the government and social sector only stipulate civil rights and obligations, performance, modification and termination of such contract and do not contain "rights and obligations created by the administrative laws," such contracts shall also be deemed as a civil contract.

3.3 Whether PPP Agreements Can Only Be Regarded as Administrative Agreements

If PPP Agreements comply with the four elements of an administrative agreement, are they merely an administrative agreement and cannot be categorized as a civil contract?

As a matter of fact, most of the PPP Agreements demonstrate the outlook of "contract integration"9, which means that numerous agreements' contents, such as the investment cooperation contract, shareholder contract, construction contract, O&M contract and asset transfer contract, are integrated into one contract, and it may also provide the support on the project by the government, administration and supervision, etc. These rights and obligations from different types and fields have a certain degree of interdependency and interplay. Therefore, such characteristics of the PPP Agreements make it involve a wide range of legal fields, covering a number of legal departments such as the General Rules of the Civil Law, the Contract Law, the Budget Law, the Government Procurement Law, the Company Law, the Security Law, the Insurance Law, the Administrative Licensing Law, the Administrative Penalty Law, the Administrative Procedure Law, the Administrative Reconsideration Law, the Civil Procedure Law, the Arbitration Law, the Accounting Law, the Land Administration Law, the Construction Law and the Environmental Protection Law, showing a clear feature of a mixture of public and private laws.

The matters in the PPP Agreements, such as granting and recovery of government concession agreements, government procurement complaints, government information disclosure, project planning licensing, administrative penalties on project companies, compensation on taking decisions for project companies, determination of charging standards and so on, shall be obviously dealt with as administrative acts due to the performance of related administrative functions. For example, in a highway PPP project, the government usually promises not to build another competitive highway within a certain area of the project for a certain number of years. In essence, such commitments constitute restrictions for the government to lawfully exercise its power of administrative licensing, which can only be achieved through administrative actions and are subject to the right of priority to benefit the administrative agencies.

However, regarding investment and financing of project companies, acquisition of land using rights, construction, project ownership, distribution of project proceeds, guarantee for projects, pledge over the right of benefits, buy-back, tax burdens, default liability and other issues under the PPP Agreement, although these contents are integrated in one PPP Agreement, they are essentially the superimposition of common acts of enterprises, such as investment, construction, procurement and operation, which shall not influence the nature of civil acts.

In addition, for government payment projects and viability gap funding projects, the government assumes certain monetary payment obligations, and this part of funds needs to be resolved with fiscal funds. However, this is only a consideration for the government to obtain public services provided by social sector on behalf of the government, which is not substantially different from ordinary civil service contracts. It cannot be misconstrued as an administrative act simply because fiscal funds are involved or in the name of "subsidies" or "allowances".

Similarly, other than monetary payment obligation, some obligations of the government, such as the provision of the land using right for project construction and operation or external conditions support, are also the consideration paid by the government for procuring the service and the subject matter of the delivery is merely "object" or "behavior" rather than "money", which shall also be identified as civil acts.

As is summarized by Lin Zhiwei, Secretary General of the BAC/BIAC, "the main focus of the PPP Agreements is on balancing the interests, and social sectors rarely really challenge the administrative power of government. Even if they do, this challenge can be turned into the balance of interests".10

In summary, if PPP Agreement is categorized into administrative agreements by taking one-size-fits-all approach, it will be disadvantageous for the accurate understanding of the "duality" nature of the PPP Agreement and the effective resolution of PPP disputes.

"The life of the law has not been logic: it has been experience." In fact, before the release of the Judicial Interpretations on Administrative Agreements, the SPC had already distinguished the nature of cases based on the duality of PPP Agreements in a series of typical cases, and then determined whether to apply administrative or civil rules.

We will begin by taking the dispute regarding termination and buy-back as an example to further analyze the duality of PPP Agreements. The SPC held in a case that the administrative acts affecting the occurrence and method of the buy-back were different legal relations and independent from the disputes arising in the process of buy-back regarding the basis of the buy-back payment. Where all parties concerned have no objection to the conduct before the termination, that is, no specific administrative act is involved while the dispute is merely the basis for repurchase price, all parties concerned are of equal legal status in respect of payment of repurchase price, and the application of civil laws and regulations cannot be excluded.

In addition to the above cases, there are many typical cases decided by the SPC, in which the nature of the disputes is distinguished based on the "duality" of the PPP Agreements.

Since the promulgation of the Judicial Interpretations on Administrative Agreements, we think that the good practice implemented by courts at all levels based on the "duality" of PPP Agreements still needs to be developed continuously and deeply. 

CONCLUSION AND PREVIEW

Looking back on 2019, The Chinese construction industry has unprecedentedly seen a series of laws, administrative regulations, and judicial interpretations and guiding cases issued by the SPC, which cover the requirements for construction permits, government-invested projects, safeguards for migrant workers payment, EPC contracting, PPP, overseas projects and other major fields, and core issues in relation to the construction, which is bound to bring structural effects and changes on the market landscape of construction projects, transaction rules and the rights and obligations of inter-related parties, and to have an important effect on construction dispute resolution and development trend.

Looking forward to 2020, in the field of legislation, the NDRC released the Bidding Law (Revised Draft for Soliciting Opinions) to revise 58 articles, add 28 articles, delete 2 articles and maintain the same 8 articles of the existing Bidding Law, which can be regarded as a comprehensive revision. In particular, a series of major revisions, in respect of the scope of projects subject to the tendering, procedures for determining the winning bidder, scope of application of the lowest evaluated bid price method, performance guarantee and so on, have aroused the broad attention and discussion in the industry. We believe that the comprehensive revision to the Bidding Law will have a significant and far-reaching impact on the conclusion and performance of construction contracts and related dispute resolution.

Looking forward to 2020, in the field of practice, after the outbreak of COVID-19, the handling of various disputes caused by the effect of the epidemic on the performance of the construction contracts will be one of the core contents of the restoration work. While providing full support for the prevention and control of the epidemic, the colleagues in the field of construction law in China have published a series of research outputs bearing the characteristics of high-quality, forward-looking and international vision. With the emergence of disputes over extension of time and payment claims, it is believed that these research outputs will further enrich and develop the rules and practices of construction law in China.

1. On 27 April 2009, Notice of the Supreme People's Court on Correctly Applying the Interpretation II of Several Issues concerning the Contract Law of the People's Republic of China So As to Serve the Primary Objectives of the Party and the State (Fa [2009] No.165).

2. Article 61 of the Contract Law: "For a contract that has become valid, where the parties have not stipulated the contents regarding quality, price or remuneration or the place of performance, or have stipulated them unclearly, the parties may supplement them by agreement; if they are unable to reach a supplementary agreement, the problem shall be determined in accordance with the related clauses of the contract or with trade practices."

3. Beijing Arbitration Commission/Beijing International Arbitration Center, Commercial Dispute Resolution in China: An Annual Review and Preview (2018), China Legal Publishing House.

4. Article 52 of the General Principles of the Civil Law: "If the enterprises or an enterprise and an institution that engage in economic association conduct joint operation but do not have the qualifications of a legal person, each party to the association shall, in proportion to its respective contribution to the investment or according to the agreement made, bear civil liability with the property each party owns or manages. If joint liability is specified by law or by agreement, the parties shall assume joint liability."

5. http://courtapp.chinacourt.org/zixun-xiangqing-207571.html (accessed 5 Feb. 2020).

6. See PPP Project Agreement Guidance (Trial) released by the Ministry of Finance on 30 December 2014.

7. http://courtapp.chinacourt.org/zixun-xiangqing-207571.html (accessed 5 Feb. 2020).

8. Paragraph 1, Article 43 of the Government Procurement Law:" The Contract Law applies to the government procurement contract in which the rights and liabilities are agreed on the basis of equality and voluntariness of both sides."

9.  "Contract Integration" means the legal fact that several contracts are combined without losing its personality. See Shi Shangkuan, The General Theory of Obligation Law, China University of Political Science and Law Press, first edition, January 2000, p. 11.

10. Discussion on Legal Issues Related to PPP Agreement in China, reported by People’s Court Daily, 30 August 2017, p.5.

The report is the research outputs of the Annual Review on Construction Disputes in China （2020）by the authors, which will be included in the Commercial Dispute Resolution in China: An Annual Review and Preview (2020) compiled by the Beijing Arbitration Commission. The book has been published by Wolters Kluwer Hong Kong Limited. Welcome attention.