| On one hand subcontracting has been strictly restricted by China's laws and regulations. On the other hand illegal subcontracting has become widespread in the industry of construction in China, known as the "source of all evils". Almost all of the construction quality and safety accidents are ultimately attributed to illegal subcontracting, and therefore it has become a scapegoat and the target of public criticism.The issues this thesis is trying to resolve are:whether subcontract restricting rules in our law are reasonable or not? Whether illegal subcontracting being widespread in China is attributed to those outdated rules or not? This thesis takes subcontract restrictions of Article 272 (2) and (3) of the Contract Law P.R.C (hereinafter briefly referred to as Article 272 (2) and (3)) as the research object, combining with the relevant provisions of the Construction Law, the Bidding Law and other laws and regulations. From the perspective of comparative law on the object, subject, the rights and obligations of participants, and legal consequences, of the legal relationship of subcontracting, this thesis tries to find the difference between Chinese and foreign rules of subcontracting, and analyzes their advantages and disadvantages, and then concludes that illegal subcontracting being widespread is attributed to those irrational restrictions on subcontracting from the perspective of law, some of which are inconsistent with international practices, not reflecting the objective laws of the development of productive forces and project contracting, and partially reflecting the contradiction and collision between the objective laws of subcontracting and the outdated statute constraints. Therefore, it is recommended that the restrictions on subcontracting and civil consequences of illegal subcontract be mitigated, and finally this thesis comes to the advices to revise Article 272 (2) and (3).At present, the study on subcontracting in China is mainly based on practice under interpretation of current laws and regulations, but the rationality of the definitions of illegal subcontracting in our law is lack of argument, because the definition does not consider whether it adapts to the diversified development of project contracting mode and management, whether the subcontracting rules are in line with international standards, and whether the lagging subcontracting rules themselves are constituted as the factor of illegal subcontracting. The systematic study on subcontracting restrictions has not been seen from the perspective of law. There are few statutes providing for subcontracting restrictions in foreign countries, and they usually may be seen in the standard clauses of the model contracts. Subcontracting restrictions fall into the category of the parties' autonomy of contract, and disputes caused by them in practice are less, therefore it does not become one of the hot spots in foreign study. Actually, there are few studies focusing on illegal subcontracting or subcontracting restrictions in foreign countries. Some literatures are related to issues such as assignment, subcontracting scope, sub-subcontracting or subcontracts needing prior consents from the employer, but the study is not deep enough. Whether foreign or domestic study focusing on subcontracting restrictions with the approaches of comparison, economics, legislative purposes or values, have not yet come up.This thesis consists of six chapters not including preface introduction. The first chapter is about the concept of subcontracting and basic theories. The second, third and fourth chapter analyze the irrationality of subcontracting restrictions in our current law respectively on the object that is subcontracting scope, the subject that relates with the subcontractor licenses, and contents that are rights and obligations of the legal relations. The fifth chapter is about the civil consequences of the violation of the rules of subcontracting restrictions. The sixth chapter comes with the conclusion and advices on amendments on Article 272 (2) and (3). Details are as follow:The first chapter, as the logic starting point of this thesis, defines the concept and essence of subcontracting from economics and law. From the perspective of economics subcontracting is the result of specialization and cooperation of enterprises. It is necessary for modern construction industry to develop and for enterprises to seek profits. As to its legal nature, it should be regarded as substituted performance.In the second chapter, from the object of subcontracting, this thesis analyzes the irrationality of the subcontract restriction rules, emphasizing on wholly-subcontracting, main-work subcontracting and enlarging-labor-subcontracting. Innovations of this chapter are as follow:(1) subcontracting restrictions in our current law are irrational and the project contracting mode determines the maximum possible scope of subcontracting; (2) subcontracting scope is the category of both parties' autonomy; (3) construction does not require the contractor to perform personally, and the essence of contractor's work is project management, coordination, integration and monitoring; (4) wholly-subcontracting is not assignment; the definition and restriction of wholly-subcontracting in our current law is too wide, and therefore valueless wholly-subcontracting shall be forbidden but normal partly-subcontracting shall be allowed, because the key differing wholly-subcontracting from normal subcontracting is whether the contractor actually takes responsibility of project management; it will not lead to quality or safety problems if partly-subcontracting is allowed; (5) our "construction law" introduces some rules from construction laws of Japan, Korea and our Taiwan Province, but no law or practice in two legal systems including laws of Japan, Korea and our Taiwan Province forbids partly-subcontracting by dismantling the whole works, main-work-subcontracting and enlarging-labor-subcontracting. Those subcontracting restriction rules do not conform to the objective law of project contracting and the development of market economy, and it is difficult to realize the objective of those restriction rules to ensure construction quality and safety. Therefore the subcontracting law in our country shall allow the contractor to dismantle and subcontract the whole works, and shall allow subcontracting the main works or enlarging labor subcontract.The third chapter discusses the irrationality of licensing of subcontractor in China. Innovations of this chapter are as follow:(1) the legal nature of the qualification license is the administrative license falling into the category of public law, therefore it shall go back to the public law rather than be provided in the contact law. (2) the qualification licensing system in our country confuses the difference between the licensing system and the registration system. It is recommended to separate the licensing system from the registration system, limit the application of licenses to the necessity to ensure construction quality and safety, and strengthen registration management, in order to minimize the administrative interference to the market freedom. (3) China's qualification licensing standards are too high, which is not good to the healthy development of the subcontracting market and the construction industry, and therefore it is recommended to reduce corporate asset standards and not to require the number of workers and machines. (4) the essence of labor subcontract is project subcontracting, and therefore the general rules of subcontracting shall be applied. There is no license or registration specially for construction labor service outside the mainland of China. It is proved in practice that the existing labor subcontracting system provides good shelter for illegal subcontracting, which not only causes the disharmony of the law itself, but also exacerbates the chaos of construction industry, and therefore it is recommended to abolish the labor licensing system. (5) limiting the application of licenses, lowering licensing standards and abolishing the labor licensing system will not reduce construction quality or aggravate industry chaos. In short, it is necessary to minimize administrative licensing on the market economy and to reduce restrictions on free competition, in order to lower barriers to enter the industry and to encourage people to start businesses and small and micro enterprises to participate in subcontracting.Chapter 4 analyzes the restrictive norm of rights and obligations in subcontracting. Innovations of this chapter are as follow:(1) the contractor should assume a single point of responsibility for the subcontracting work to the employer, but for the nominated subcontract, the contractor shall take only the responsibility of guiding, coordinating and supervising the subcontractor as the agent of the employer, not like domestic subcontractor for which the contractor is wholly responsible. The employer shall be responsible for its errors or misconduct in selecting the nominated subcontractor so that to discourage the mode of nominating. Due to no privity between the subcontractor and the employer, the subcontractor is principally not directly liable to the employer. Therefore, it is not rational for the subcontractor to be jointly and severally liable for its work performed to the employer together with the contractor. It is suggested that under the privity of the contract only if the contractor goes bankrupt or the main contract is terminated or the employer assumes the obligations of the contractor under the subcontract including to pay the subcontractor the unpaid due money, the contractor's rights under the subcontract can be assigned to the employer. In this case, the subcontractor is directly liable to the employer, and continues to enjoy its right of defense against the contractor in the subcontract. Cancellation of joint and several liabilities between the contractor and the subcontractor helps protect the interests not only of the subcontractor, but also of the contractor.(2) the provision of "with the employer's consent the work can be subcontracted", does not provide for any restriction on the right of consent by the employer, which is a leaking hole of legislation and could easily lead to the abuse of the right, resulting in inappropriate results. Therefore, it is proposed to entitle the parties to make it clear in the tender documents or contracts what work is allowed to subcontract. The consent to subcontract shall be made by the employer in reasonable time. If the employer objects the prospective subcontractor selected by the contractor, "reasonable grounds" shall be given in writing by the employer. If undue delay or objection is made by the employer the contractor shall be entitled to corresponding extension or compensation for losses.(3) Sub-subcontracting is the international practice of the industry. It is the objective need of the development of productivity and subcontracting market. It is necessary to upgrade the project contracting and management. Sub-subcontracting will not reduce construction quality or safety or aggravate chaos of the industry, and therefore it is advised to be allowed and encouraged by law.The fifth chapter focuses on the civil consequences of failure to follow the restrictions of subcontracting. China's theory and practice usually regard Article 272 (2) and (3) as mandatory norms that determine the legal effect of the contract in question, resulting in that a large number of construction subcontracts were invalidated. The innovations of this chapter are mainly as follow:the invalidation of the contract does not help to improve construction quality and safety, is not conducive to the protection of the interests of the contractor, damages the fair value of the law and the freedom of contract, and does not conform to the objective laws of construction and our national conditions, and the validation of contract will not connive wholly-subcontracting or illegal subcontracting. Therefore it is advised that the civil consequences of illegal subcontracting should be mitigated rather than the contract is directly invalidated in practice before the modification of the subcontract restriction rules in Chinese law. Without prejudice to public law sanctions the choice of remedies shall be made by the innocent party, such as giving the employer the freedom to choose remedies, whether and what liability to request the contractor to bear for breach of contract.Chapter 6 summarizes the conclusions of the above chapters and concludes the central argument of this thesis that China's subcontract restriction rules are not entirely fair and reasonable, and it is advised to release restrictions on subcontracting. The civil consequences of illegal subcontracting should be mitigated rather than the contract is directly invalidated in practice before the modification of the subcontract restriction rules in Chinese law. Finally, it concludes with amendments to Article 272 (2) and (3) as follows:The parties to a construction contract may agree on the work that may be subcontracted only with the consent of the employer. Other than the work agreed upon the contractor may subcontract freely and independently. For subcontracts that the consent from the employer is required, the consent shall not be unreasonably withheld. The contractor shall be wholly liable to the employer for the work done by the subcontractor, but not for the subcontractor nominated by the employer. In the latter case the contractor shall only assume the agent responsibility of guiding, coordinating and supervising the nominated subcontractor. There is no contractual relationship between the employer and the subcontractor. Unless otherwise required by the employer under specified conditions, the subcontract may be assigned to the employer, and in this case the subcontractor shall be directly liable to the employer.The contractor shall not subcontract all the contract works as a whole to a third party. Unless otherwise agreed upon, the contractor may subcontract all or any of the works to different third parties by dismantling the works into different parts under the conditions of the contractor assuming the management obligation on the subcontracting works. Subcontractors may further sub-subcontract their works with the consent of the contractor and the employer, but the consent shall not be unreasonably withheld.In the end regarding this issue it is predicted that if the restrictions are completely released in one step the resistance will be strong. It should be start with the easy. Modification on restrictions may be first made in some test cities, and then the national laws may be modified based on the lessons learned; releasing restrictions on subcontracting will not lead to construction quality or safety problems. It is already proven by practice that strictly restricting subcontracting cannot achieve the purpose of legislation to ensure construction quality and safety. Construction quality and safety problems are caused by the failure for engineers to take personal responsibilities, so to ensure construction quality and safety the practice and income system of registered engineers need be reformed, the integrity and relputation of individuals and enterprises especially the blacklist during professional practice shall be made public, and engineers' professional insurance system shall be established. Meanwhile a series of comprehensive supporting systems shall be established, such as technical regulations on construction quality and safety, enterprise quality and safety assurance system, engineers professional practice system, construction supervision mechanisms, independent third party professional assurance mechanism including drawing review, quality and safety monitoring, consulting and evaluation, covering design, construction, warranty and the comprehensive insurance system of engineers' professional liability, enterprise and individual reputation system for construction quality and safety, the supervision and administration mechanism of government, etc. All these systems or mechanisms belong to public law, which is far beyond the scope of this thesis study. |
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