Construction Contract Dispute: Court Upholds 582,840 Yuan Payment Despite Invalid Subcontract
An appellate court in eastern China has upheld a trial court judgment awarding 582,840 yuan in unpaid construction costs to an individual subcontractor on a residential development project, while clarifying that an invalid subcontract does not preclude payment for completed work.
In 2004, a development company contracted with a construction firm for a residential project. The construction firm then entered an internal subcontract with Mr. Shen for buildings 1, 3 and 5. Mr. Shen, an individual without construction enterprise qualifications, performed the work. The contract was therefore invalid, but the project passed final inspection in April 2006.
A dispute arose over the construction cost. Mr. Shen argued that under the contract, if the owner failed to audit his cost submission within four months, his submitted figure should control. The court rejected this, finding the four-month deadline was a term between Mr. Shen and the construction firm, not binding on the owner, and Mr. Shen had submitted his cost statement beyond the contractual deadline anyway.
The court appointed an appraisal agency, which determined the construction cost at 7,713,774 yuan based on a 40 yuan per cubic meter subsidy for commercial concrete. The construction firm had paid 6,040,250 yuan. After deducting a 7.5 percent management fee of 537,007 yuan, the balance was 582,840 yuan.
Both parties appealed. Mr. Shen sought to use his submitted cost figure and challenged the concrete calculation. The developer argued Mr. Shen was not a proper actual constructor. The appellate court rejected all challenges, finding the trial court’s methodology sound and Mr. Shen’s status as an illegal subcontractor sufficient to claim payment under judicial interpretations.
The appellate court affirmed the judgment. Each appellant bore half the 17,498 yuan second-instance fee.
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