China: Building for Joint Ventures (Second edition)

Ch. 8. Contracts and Costs

CHAPTER EIGHT ( 'ol/{rac!s COllIracts and Costs The PRe forlll oj COlls/rue/io/l COllfmcl In the early years of China's rcfomlS, cultural diflcrcnccs could be secn clearly between the PRe attitude to construction contracts and the contents of western types of contract. The traditional PRe contract envisages the two partics 'working together in a spirit of co-operation ,l11d equality using their best endeavours \0 carry out the state's construction projects efficiently and economically'. The wcstcm Iype of contract has always anticipated a situation rar short of complete identity of interest between Ihe parties. whose relationship could become adversarial under commercial pressure. It attempts 10 sct down a fully comprehensive schedule of rules governing the rights. obligations and remedies of the pal1ies, to forestall disputes. In contrast to the extremely detailed and legalistic western style contracts, PRe contracts traditionally used to contain a few pages of simple contract tenns and conditions that set out the intentions of the panics in a concise and practical manner in the expectation that caeh pal1y would carry out its obligations in the bcst way that it could, Documents were onen churacterised by whm appeared to others to be distinctly nonlegalistic terms such as 'all items not found in this contract will be deliberated and decided upon in u spirit of mutUll1 understanding und trust', However in the years since the modernization began. the PRes transition towards a socialist market economy has resulted in exposure to western contracting methods and the contracts, cven some of those used for jmligenous projects. have moved much closer in style and content to those found in "long Kong, In 1991. the Ministry of Construction issued a sample fonn 145 • of contract (GF-91-0201) for usc by all provinces and cities for indigenous construction projects. The sample contract demonstrates the trend that China is progressively adopting thc western approach of drnfting contracts with a set of rules governing the rights, obligations and remedies of the partics to the eontract. Thc samplc fonn providcs u basic structurc and content which can be adapted to suit local rcquiremcnts and experience. For example, thc form uscd in Shanghai is quite sophisticated and reflects expcrience with joint venturc projects whcreas fornlS uscd in othcr parts of China may be quitc bricf. The contracts can be lump sum or relTleasurcmcnt contmcts. The schedule of rates issued by construction commissions is oftcn uscd to providc thc b;lsic ratcs for pricing. Thc rates in the schedule are adjusted based on labour rates and thc cost of other variables agreed between the parties. One main feature of the PRC contract (GF-91-0201) which is different from western fonns of contract is that the architect. engineer and quantity surveyor are not defined in the contract conditions. The administrator of the contract is the employer (the tern) uscd in the contract to signify the client): for example, the employer is empowered to issue instructions and order variations although very often the role is delegated to the architect or Olhcr consultant. The quasi-judicial function of thc architect. engineer and quantity surveyor which is very much an essence of typical western fonn of contracts is much less apparent in the PRC contract. The PRe form reflects the locnl custom that the employer traditional1y is responsible for dcaling with thc government authorities and utility dcpartmcnts. It also contains conditions requiring the employer to providc tcmporary powcr, watcr and telephone: tcmporary acccss to sitc if required: necessary licensing or consents by authoritics: assistance regarding underground services and adjacent structures requiring protection or removal. and so on. The employer usual1y undcrtakes these functions through a preparatory office (describel/ ill Chapter Fil'e). The fonn is a hybrid of eontmct conditions and specification. It contains detailed reference to the general specification to be used and requirements regarding drawing sizes and scales, 146 Jom! Venture Company ......, ConS!ruelion Compmly : Nommated spcciah~( trade ~on(rae( (local ." or oH'rseas) Material'" Laboor ., EqUIpment Aht'matl\'e c:omrJctual arrJngcmcnb dlltt!ly wnh JVC Figrln.- 8./ A/tc:rrtUln't" nmtrllorml I",h temporary power and water. site office. plant and equipment. and so on. These are normally pan of the specification and not included in the conditions of contract of the western fonns. Form of COl/struc/iOIl COlllrael for joilll \'ellfures While foreign investors may feci comfonable working with building contract conditions with which they arc famil...