Recongnition On The Validity Of The "Formal And Substantial Contract" In Construction Project

The field of construction projects in China “the formal and substantial contract”is a common phenomenon.“The formal and substantial contract” itself is not aspecific form of contract, but refers to a process of engineering construction in aconstruction project transaction. Its origin from China’s construction market, whichgrowth is still not perfect, the legal system has not been fully established, and themain body of the market lacks the necessary contract credit risk consciousness, thecorresponding performance consciousness should be strengthened, and the marketsupply and demand imbalance problem. Various reasons together, make “the formaland substantial contract” a keen selection between developers and contractors to avoidthe strict supervision of government functional departments, and seek improperinterest of enterprise. Once “the formal and substantial contract” signed, there will bea series of social problems such as, the engineering quality is not up to standard,project payment arrears and the contractor arrears of wages of migrant workers,subcontract and deduction. These problems not only brought enormous industry riskto the construction market, but also disturbed market order, restricted the health andorderly development of construction market. Simultaneously it is a potential threat tothe safety of people’s lives and property, so that the legitimate rights and interests ofvulnerable groups of migrant workers are infringed, persecuted, most importantly, itwill influence the course of socialism harmonious society. The existing laws of Chinacannot effectively prevent defects of the existence of “the formal and substantialcontract”, but the effective regulation method is to make the evaluation of itseffectiveness. To put a malicious collusion as the standard, the following conclusionscan be drawn: if malicious collusion is confirmed, two contracts are invalid.Otherwise, considering “substantial” contract, it will be valid if signed prior to the bid,and after the bid, it can also be identified as valid if not endanger the interest of thenation and society, the opposite is invalid. Considering “formal contract” in theabsence of malicious collusion cases, it is valid that signed without negotiating thesubstantive terms of the contract before the bid, and also valid that the negotiationbehavior has no effect on the result of “formal contract”, but once the negotiationbehavior had an impact on the situation to win the bid,“formal contract” shall bedeemed to be invalid. In accordance with the existing law,“formal contract” is validthat signed after the bid.