Insufficient Construction Market Regulations

Recently, the Legal Affairs Office of the State Council released the "Administrative Measures for the Construction Market (Draft for Public Comment)" (hereinafter referred to as the "Measures"). These measures directly address the chaos within the construction industry, including illegal subcontracting, unauthorized subcontracting, and overdue payments for construction projects. Furthermore, the document emphasizes that any unlawful interference by relevant government departments in project construction will result in corresponding legal consequences. Some experts have noted that these "Administrative Measures" represent a comprehensive regulation of China's construction market through administrative guidelines. Compared to similar laws in the past, the content is more detailed and covers a broader range of issues. However, the draft still has room for improvement. Establishing robust reward and punishment mechanisms has become increasingly important as China's economic and social development accelerates. The construction market has grown remarkably active, but it has also exposed several problems requiring resolution. The "Measures" analyze the current chaos in the construction market, including unclear responsibilities of government departments, lack of transparency in project information disclosure, excessive cost estimates for government-funded projects, chaotic capital management, illegal subcontracting, cutting corners, inadequate supervision, arbitrary schedule compression, and failure to enforce safety responsibilities. To tackle these challenges, the "Measures" have reinforced management and penalties within the construction sector. They clearly define the responsibilities of relevant government departments and practitioners during project execution. Additionally, the document establishes systems such as prohibiting project fragmentation, subcontracting, illegal subcontracting, and affiliated contracting. It also introduces a permanent signboard for public project information, a labor service information-sharing platform, a ban on arbitrary schedule compression, and a safety responsibility system overseen by supervisory engineers. Furthermore, it mandates timely payment of project funds and labor fees by construction units and general contractors, along with specific penalty rules for violations. Zhang Yong, a lawyer from Beijing's Changhong Law Firm, commented that the "Administrative Measures" provide a deeper standardization of China's construction market. While some provisions revisit previous systems, others introduce new frameworks. These measures outline the responsibilities, rights, and benefits of relevant government departments, construction companies, contractors, supervisors, surveyors, and designers. Detailed penalty rules are also included. Zhou Jigao, director of the Construction Engineering Business Research Committee of the Shanghai Bar Association, noted that these regulations are more standardized than existing legal norms in the construction market. Although many provinces previously had local construction market regulations, no national-level standards existed. As reported, cities like Shanghai, provinces such as Jiangsu and Hunan, and regions like Jilin have enacted similar "Construction Market Regulations," though their specifics vary. Zhou Jigao also highlighted that compared to the "Regulations on Construction Project Quality Management" and the "Regulations on Construction Project Safety Management," the "Administrative Measures" focus more on regulating the behavior of construction entities. For instance, if government or construction unit funds are not properly allocated, construction permits will not be issued. Moreover, governments and construction entities are prohibited from arbitrarily shortening project durations, which could compromise quality and safety. Zhou Jigao acknowledged some gaps in the "Measures." He mentioned that some construction units control costs by setting tender control prices (the maximum price), but certain bidding agencies set these limits below actual project costs. This results in low-cost bids that lead to cutting corners, causing frequent quality and safety incidents. The "Measures" do not address this issue. Implementation is crucial. Recent incidents involving poor-quality projects—such as building collapses in Shanghai and bridge failures in Harbin—highlight the need for stronger accountability. Zhang Yong proposed expanding the scope and intensity of responsibility for such cases. He emphasized that enforcing policies is key, given the prevalence of illegal subcontracting and fragmented contracting despite bans. Zhang Yong also identified inconsistencies in the draft. Article 9 states that within the scope of a general contractor's qualifications, only one subcontractor per unit can be engaged. Yet, Article 27 of the "Building Law" allows multiple contractors to jointly undertake large or complex projects, assuming joint liability. Resolving this contradiction requires coordination between regulations. Zhou Jigao reiterated that while stricter regulations have been imposed on illegal activities, enforcement remains weak. Fragmentation, subcontracting, and affiliations persist because previous regulations were not fully implemented. Clarifying responsibilities is necessary, but effective execution remains uncertain.