For an EPC project, a construction general contractor won the bid and signed an EPC general contracting construction contract with the construction unit. After winning the bid, the general contractor signed an internal contracting contract with an individual who was not the general contractor. During the construction process, the general contractor found that some clauses in the internal contracting operation contract were very unfavorable to the general contractor, and wanted to sign supplementary agreements on certain clauses separately. However, the other party to the contract did not agree to enter into a supplementary agreement. Now that the project has been completed, the construction unit has allocated the project money to the general contractor, but the general contractor has not allocated the project money to the individual contractor. Now the de facto individual contractor wants to bring the matter to court. However, the general contractor refused to allocate the project money to the individual contractor on the grounds that the internal contracted operation contract was invalid in law. This is because the actual contractor is not an employee of the general contractor. Nominally, the EPC project is under construction by the general contractor, and the management personnel of the project are also the personnel of the general contractor. However, the general contractor only charges the management fee of the actual contractor.
Is the contract legally valid?
Keywords: subcontracting, internal contracting agreement, penetrating trial thinking
It is a question of the validity of internal contracting agreements.
Regarding the nature of the internal contracting agreement, you can refer to the following explanation on how to distinguish between affiliation and internal contracting in the Answers of the First Civil Division of the Hangzhou Intermediate People's Court on Several Practical Issues Concerning the Trial of Cases of Construction Projects and Housing Related Disputes: "For the internal contracting contract of the construction unit, it shall be deemed to be a project contracting contract signed by the project contractor with its subordinate branches or employees for all or part of the project contracted by the construction enterprise, which is an internal business mode of the construction enterprise, and is not prohibited by laws and administrative regulationsThe contractor shall manage the construction process and quality of the project, and assume the rights and obligations of the construction contract. Where one of the parties claims that the internal contracting contract is invalid on the grounds that the contractor in the internal contracting contract lacks construction qualifications, it is not supported. Affiliation, on the other hand, refers to the fact that the actual construction entity undertakes a construction project in the name of a qualified construction enterprise, and there is no subordinate or management relationship between the actual construction entity and the affiliated enterprise, which constitutes a contractual relationship between independent entities. Therefore, the distinction between the two should be judged mainly from whether there is a labor or subordinate management relationship between the parties to the contract, and whether the funds, materials and technologies required for the contracted project are provided by the other party. It can be seen that a consensus has been reached in practice on the validity of internal contracting agreements: internal contracting agreements are valid.
There is a certain degree of concealment between the affiliation and the internal contracting agreement, and now in order to prevent the act of being traced after the fact, many construction units directly sign labor contracts with the actual contractor, pay social security and pay wages for them, identify them as internal employees, and artificially fabricate the illegal affiliation behavior as an internal labor contract relationship through a series of means. Returning to this case, there is no labor relationship between the actual contractor and the contractor, and there is no social security, so it is obvious that although the two parties have signed a business contract called internal contracting, if we look at it with a penetrating trial thinking, the construction unit will hand over the project to the individual for construction after winning the bid, so the legal relationship between the contractor and the actual contractor is subcontracting, and the subcontracting agreement is of course invalid.
Although the subcontract agreement is invalid, it is based on Article 793 of the Civil Code: "If the construction contract of a construction project is invalid, but the experience of the construction project is qualified, the contractor may be compensated with reference to the agreed discount of the project price in the contract." "The legal consequences of the invalidity of the contract still have to be settled with reference to the contract.
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