Preface

In 2020, the Ministry of Housing and Urban-Rural Development and the People’s Bank of China proposed the “three red lines” policy at a symposium, followed by the “two concentrations” policy issued by the Ministry of Natural Resources in 2021. Compounded by the impact of COVID-19, the real estate industry entered a period of deep adjustment. Traditional heavy-asset development models faced difficulties, while construction agency as an asset-light model gradually gained market favor. From 2021 to 2024, the number of construction agency enterprises surged from less than 30 to over 100, with newly signed agency construction area breaking 100 million square meters for the first time in 2022, reaching 170 million square meters in 2023 (53% growth), and exceeding 200 million square meters in 2024.

Against this backdrop, legal issues in the construction agency model have become increasingly prominent. Currently, China has not provided a clear definition of “construction agency,” and the legal nature of construction agency contracts remains controversial in both academic and judicial practice. Furthermore, whether the project payment liability should be borne by the agent or the principal remains disputed. This article aims to provide practical discussion on these issues for reference in handling similar disputes.

I. Legal Nature of Construction Agency Contracts

Before discussing the legal nature of construction agency contracts, it is necessary to clarify the two-tier contractual relationship involved. The first tier is the agency construction contract between the principal (investor) and the agent (and possibly a third-party user), whereby the principal entrusts the agent with organizing construction and managing funds. The second tier is the construction contract between the agent and the contractor, where the agent, as the employer, contracts the project to the contractor in its own name.

A. As a Commission Contract (Agency Contract)

Under Articles 161, 162, and 919 of the Civil Code, a commission contract is one where the principal and agent agree that the agent shall handle the principal’s affairs. Construction agency contracts share similarities: the principal entrusts project construction matters to the agent, and the agent completes the tasks as agreed. Some courts recognize this view. The Supreme People’s Court in (2019) Supreme People’s Court Civil Application No. 1075 and (2020) Supreme People’s Court Civil Final No. 848 held that commission contract provisions should apply.

B. As a Real Estate Development Contract

Under the Civil Case Cause of Action Provisions (2025), agency construction contract disputes are categorized under real estate development contract disputes, alongside joint venture/cooperative development disputes and project transfer disputes. The Jilin Higher People’s Court in (2020) Ji Civil Final No. 241 held that agency construction contracts differ from ordinary commission contracts. The Supreme People’s Court in (2021) Supreme People’s Court Civil Application No. 1212 also agreed that such contracts have the nature of real estate development.

C. As a Work Contract (Hiring Contract)

Justice Wang Yuying of the Supreme People’s Court proposed that the essence of construction agency contracts lies in work contracts. Under Article 770 of the Civil Code, a work contract is one where the contractor completes work and delivers results according to the client’s requirements, and the client pays remuneration. In the construction agency model, the agent completes construction according to the principal’s requirements and delivers the results, sharing commonality with work contracts.

D. Author’s View

In the author’s view, construction agency contracts should be recognized as independent innominate contracts rather than any specific type of nominate contract:

1. Not suitable as commission contracts: In ordinary commission contracts, the agent acts in the principal’s name, with consequences borne by the principal. In construction agency, the agent contracts in its own name, bearing risks and benefits. Commission contracts also grant both parties the right to terminate at will, which would disrupt project transaction security if applied to agency construction.

2. Not suitable as work contracts: Under Article 772 of the Civil Code, the contractor must complete the main work with its own equipment, technology, and labor. In construction agency, the agent only selects contractors and supervises construction, without needing its own construction qualifications or capabilities.

3. Not suitable as real estate development contracts: Cause of action classification is for procedural convenience in litigation, not for determining the substantive legal nature of the contract.

Conclusion: Although construction agency contracts share certain features with commission, work, and real estate development contracts, they should be recognized as independent innominate contracts. Rather than adopting a one-size-fits-all characterization, the legal relationship should be determined based on the specific rights and obligations agreed in each contract.

II. Analysis of Payment Liability Subjects

Regarding who bears project payment liability in the construction agency model, there remains significant controversy: should the principal (construction unit), the agent (contracting party), or both bear liability?

A. General Principle: Agent Bears Payment Liability

Under the privity of contract principle, where there is no special agreement, the principal does not bear project payment obligations under the construction contract. The agency construction contract and the construction contract are two independent contracts belonging to different legal relationships.

Multiple higher court judicial documents adopt this position. The Fujian Higher People’s Court (2022), Guangdong Higher People’s Court (2017), and Quanzhou Intermediate People’s Court (2021) all held that the contractor generally cannot claim project payment from the principal, and the principal cannot claim repairs or damages from the contractor.

The Supreme People’s Court in (2021) Supreme People’s Court Civil Application No. 3230 and (2017) Supreme People’s Court Civil Final No. 579 affirmed that the agent bears project payment liability as the contracting party.

B. Exception: Contractor May Claim Against Principal

1. Contractor Was Aware of Agency Relationship at Contracting

Under Article 925 of the Civil Code, where the contractor knew at the time of contracting of the agency relationship between the principal and agent, and the construction contract does not expressly limit itself to binding only the contracting parties, the contractor may claim against the principal.

The Supreme People’s Court in (2020) Supreme People’s Court Civil Final No. 848 adopted this view, holding that the contractor could choose to claim against either the agent or the principal.

2. Principal Co-signed or Actually Participated in Contract Performance

The Sixth Circuit of the Supreme People’s Court held that where the principal, agent, and user jointly sign as the employer in the construction contract, they shall jointly bear project payment obligations.

The Supreme People’s Court in (2019) Supreme People’s Court Civil Application No. 3890 and (2020) Supreme People’s Court Civil Application No. 5614 recognized that where the principal actually participated in the construction contract legal relationship through performance conduct, it may be jointly liable for project payments.

C. Author’s View and Summary

The author believes that the privity of contract principle should generally be followed, with the agent who signed the construction contract bearing payment liability. Only under statutory or agreed exceptional circumstances should the contractor be permitted to claim against the principal.

However, recent views from the Supreme People’s Court’s Sixth Circuit show a tendency toward protecting contractor interests, allowing contractors to pierce the contractual veil under specific conditions (such as knowledge of the agency relationship, joint signing, or actual participation in performance).

Conclusion

1. Legal Nature of Contract: Construction agency contracts are not expressly classified as nominate contracts under the Civil Code. Although they share similarities with commission, work, and real estate development contracts, none完全 matches. A one-size-fits-all characterization should be avoided; instead, the legal relationship should be determined based on the specific rights and obligations agreed in each contract.

2. Payment Liability Subject: Generally, the agent who signed the construction contract bears payment liability under the privity principle. Exceptions allowing the contractor to claim against the principal arise where: (1) the contractor knew of the agency relationship at contracting, allowing claims under Article 925 of the Civil Code; or (2) the principal co-signed or actually participated in the construction contract legal relationship.

Practical Suggestion: All parties should clearly specify rights, obligations, and payment liability subjects in the agency construction contract. When disputes arise, the object and path of claims should be carefully determined based on specific contractual terms and performance circumstances.