The construction industry plays a crucial role in supporting the development of the national economy. Its healthy and sustainable growth is vital to the advancement of the socialist market economy. The “Construction Law,” enacted in 1997, serves as the fundamental legal framework governing China’s construction sector. Over the past two decades, rapid economic and social development has dramatically transformed the construction market environment and the interests of all parties involved in engineering projects. As a result, certain provisions of the Construction Law no longer align with current market realities and require revision.
Currently, the main issues in the construction industry arising from legal mismatches include:
1. The construction industry is segmented into multiple specialized sectors based on project types, such as housing, transportation, energy, and railways. Administratively, the management of these specialized sectors is fragmented. Legally, the Construction Law only applies to the construction of buildings and their ancillary facilities, including installation of supporting lines, pipelines, and equipment. This division has led to inadequate government oversight of the construction industry as a whole. Consequently, China’s construction sector lacks comprehensive planning and coordination, limiting effective macroeconomic regulation. Regional and departmental interests drive fragmented market and administrative management, restricting free market activities and efficient resource allocation that could benefit society at large. Additionally, overlapping jurisdiction and local protectionism result in a closed, scattered market that hinders fair competition, leading to resource waste and market disorder.
2. Currently, construction companies are required only to provide performance guarantees; however, there is no mandatory requirement for the project owner to provide payment guarantees. This diverges from international construction market norms. As a result, construction firms face difficulties recovering owed payments, incurring significant financial burdens such as bank interest and litigation costs. Moreover, the absence of clear regulations on construction costs in the law has led to frequent delayed payments, causing numerous disputes and litigation related to construction fees. This situation has also triggered widespread wage arrears among migrant workers, posing a threat to social stability. Persistent arrears have become a major source of chaos within the construction market.
3. Illegal subcontracting, tiered subcontracting, and the misuse of qualifications are rampant in the industry, severely compromising project quality and safety. Although the Construction Law, Contract Law, and Quality Management Regulations explicitly prohibit such practices, illegal subcontracting remains widespread. Many projects are executed by unqualified “contract workers” lacking necessary certifications and skills, making it difficult to guarantee construction quality and safety.
4. The management and enforcement of building quality and safety lack rigor. Accountability mechanisms are incomplete, making it difficult to safeguard rights in the event of housing safety incidents. While the Construction Law requires projects to pass acceptance inspections before use, it lacks specific acceptance criteria. In practice, inspections often involve collusion among construction, survey, design, supervision, and other units, leading to lowered standards. This filing-based management system hampers timely detection and resolution of potential safety hazards.
5. The bidding and tendering methods prescribed by the Construction Law have not kept pace with market changes. The law favors low-price bidding but lacks clear regulations and standards for such bids, fostering unhealthy competition. This often results in conflicts between project owners (Party A) and contractors (Party B), leading to corner-cutting and substandard construction that undermines project quality.
In summary, the following recommendations are proposed:
1. Expedite revision of the current Construction Law of the People’s Republic of China. Develop a unified Engineering Construction Law that covers all investment subjects and construction projects, clarifies the competent national authority, expands the law’s scope to include all civil engineering projects, breaks down sectoral barriers, and comprehensively regulates construction-related business practices.
2. Establish a legal framework for a “double guarantee” system, requiring project owners to provide payment guarantees alongside contractor performance guarantees. This will help reduce projects suffering from insufficient or unpaid funds.
3. Clarify in the new Engineering Construction Law that the general contracting system must be implemented for all construction projects, prohibiting division and subcontracting. Governments at all levels and construction administrative departments should strengthen market oversight and crack down on illegal subcontracting practices.
4. Introduce lifelong accountability for construction quality accidents through legislation. Clearly state that construction units, surveyors, designers, contractors, supervisors, and project leaders bear responsibility for the quality and safety of projects throughout their design service life, in accordance with national laws and regulations.
5. Update the Tendering and Bidding Law, eliminating low-price bidding in favor of an evaluated average price bidding method that excludes the highest and lowest bids from evaluation. Additionally, establish a cost price confirmation mechanism for prefabricated housing aligned with current market conditions. Remove exclusive provisions such as bonus points for engineering awards in bidding, which conflict with principles of equal opportunity and market fairness.
6. Conduct a comprehensive review and revision of all regulations and rules related to construction projects alongside the revision of the Construction Law.
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