[Keywords]

Civil construction project contract disputes, lump-sum agreements, settlement agreements, engineering change orders, and quantities of work outside the contract.

【Key Points of the Ruling】

1. If there is evidence demonstrating that the “turnkey project agreement” reflects the parties’ mutual intent to settle accounts, it can be regarded as a settlement agreement.

2. The two parties have a dispute over the scope of the Class-III project. The quantity of work stipulated in the contract shall serve as the benchmark for determination. In cases where discrepancies arise regarding the contractually agreed quantities due to “yin-yang contracts,” the registered contract shall prevail.

3. For contract work quantities that have objectively occurred but were not documented with a visa, their costs can be determined by reference to the as-built drawings.

[Basic Facts of the Case]

The real estate development company, Company X, awarded the W Community project to Construction Company Y through a bidding process. In accordance with the requirements of the tender documents, Construction Company Y submitted a bid using a lump-sum pricing method and was successfully awarded the contract. After winning the bid, Construction Company Y signed a “Construction Contract (Standard Text)” with the real estate development company, Company X, and filed the contract with the relevant authorities. In addition, at the request of the real estate development company, Company X, Construction Company Y also signed a “Construction Agreement” with it.

During the construction process, a large number of work items arose that were not covered by the original contract. Most of these items were documented through engineering change orders. Some of these change orders bear signatures and official seals from all three parties—the owner, the supervisory authority, and the contractor—and specify the cost of the changed work. Others, though signed and sealed by all three parties, do not indicate a specific monetary amount. Still others carry only the seals of the supervisory unit and the contractor. Furthermore, some change orders submitted to a certain real estate development company were retained and subsequently lost.

After the completion and acceptance of the project, the responsible persons from both parties held negotiations regarding the settlement issue. The construction company claimed that the project in question had generated engineering change orders totaling over 17 million yuan, while the real estate development company argued that the project involved more than 15 million yuan worth of Class-III projects (i.e., projects under Category A control, Category A supply, and Category A outsourcing). Consequently, the two parties agreed to offset the change-order amounts against the Class-III projects, using the total contract price of 83 million yuan as the basis for settling the overall project cost. As a result, they signed the “Fixed-Price Contract for the Project,” the terms of which vaguely stipulated that the total project cost was 83 million yuan.

After the agreement was signed, due to personnel changes in the management of a certain real estate development company, the settlement process was repeatedly delayed. In accordance with the agreement, a certain construction company submitted settlement documents to the real estate development company and provided quantity verification forms for its review. However, in the end, the real estate development company denied that the “Turnkey Engineering Agreement” constituted a settlement agreement and refused to settle with the construction company based on the sum of 83 million yuan. As a result, the construction company filed a lawsuit demanding that the real estate development company pay the outstanding project payments. After the first-instance trial conducted by the Shenyang Intermediate People’s Court, the court ruled in favor of the construction company. The real estate development company then filed an appeal. In the second-instance trial, the Liaoning Provincial Higher People’s Court reversed the original judgment and ordered a retrial. Following the retrial, the Shenyang Intermediate People’s Court again ruled in favor of the construction company. Subsequently, the real estate development company filed another appeal, but the Liaoning Provincial Higher People’s Court issued a final ruling dismissing the appeal and upholding the original judgment. Afterwards, the real estate development company applied to the Supreme People’s Court for a retrial, but its application was rejected.

【Judgment Result】

The court upheld the claim filed by a certain construction company and ordered a certain real estate development company to pay the construction company nearly 17 million yuan in unpaid project payments, plus delayed interest.

【Reasoning of the Ruling】

The central issue in this case is whether the “Turnkey Engineering Agreement” constitutes a settlement agreement and whether the project’s total contract price as stipulated in that agreement can be used for settlement purposes. After trial and investigation by the court, it was determined that the “Turnkey Engineering Agreement” was executed after the completion and acceptance of the project. Therefore, from a temporal perspective, an agreement of this type signed at that stage could indeed have settlement implications.

Meanwhile, the construction company in question fulfilled its burden of proof by submitting an application for expert appraisal to the court, thereby demonstrating that the additional costs for works beyond the scope of the contract were comparable to the costs of Grade-III projects. In accordance with Article 3 of the General Principles of Civil Law, which stipulates that “civil activities shall adhere to the principles of voluntariness, fairness, and equivalent compensation,” and considering that the total contract price, as determined by the itemized quotation method adopted in the filed contract, amounted to 83 million yuan, the People’s Court ruled that the parties should settle the account based on the total contract price agreed upon in the “Turnkey Engineering Agreement.”

[Relevant Statutes]

Interpretation of the Supreme People's Court on the Application of Law in Adjudicating Disputes over Construction Project Contracting Contracts

Article 19: In the event of a dispute over the quantity of work, the quantity shall be confirmed in accordance with written documents such as change orders formed during the course of construction. If the contractor can prove that the employer approved its construction but fails to provide change-order documents to substantiate the quantity of work performed, the actual quantity of work performed may be determined based on other evidence provided by the parties involved.

Article 21: If the construction contract separately entered into by the parties for the same construction project differs substantially in essential terms from the bid-winning contract that has been filed and registered, the filed and registered bid-winning contract shall serve as the basis for settling the project payment.

[Lawyer’s Perspective]

1. The two parties signed the filed “Construction Contract” using a list-based quotation approach. At the same time, they also entered into an additional “Construction Agreement,” which essentially modified the scope of the contract by reducing the construction cost for [Company Name] from 83 million to 61 million. Compared with the filed contract, the “Construction Agreement” is the one actually followed during the course of performance and contains more detailed technical specifications and settlement provisions. If the settlement agreement nature of the “Turnkey Construction Agreement” cannot be upheld and the entire project is instead subjected to assessment and appraisal, it will inevitably lead to the incorporation of the unclear provisions from the “Construction Agreement.” As a result, the risk associated with the total project price will significantly increase. Therefore, the nature of the “Turnkey Construction Agreement” has become the central focus of this litigation—a litigation strategy that is most favorable to [Company Name].

2. Regarding the claim that the “Engineering Lump-Sum Agreement” is a settlement agreement, aside from the notable feature that its signing occurred after completion of the project, the available evidence is not encouraging. Therefore, to persuade the adjudicator to accept this view, we must present reasonable factual evidence to support it. Consequently, the amount of the engineering increment offset by both parties must be equivalent to the value of the Grade-III projects; otherwise, the basis for establishing such an agreement will be lost.

3. The loss of engineering change orders does not hinder the clarification of the facts of the case. Given that certain change orders held by a certain construction company have been withheld and not returned by a certain real estate development company, or that some portions of the project have been refused signature and confirmation, the agent may obtain the as-built drawings from the Urban Construction Archives and then request an appraisal agency to conduct an appraisal based on these drawings, thereby determining the objective additional cost of the project.

4. The determination of the Grade-III project cost hinges on first defining the original scope of the contract. During the trial, a certain real estate development company presented a Grade-III project contract worth over 40 million yuan. However, upon careful comparison with the construction schedule details in the bidding documents submitted by a certain construction company, it was found that most of the items listed therein were not part of the contract’s scope and therefore should not be deducted from the payment due to the construction company.

5. Criteria for accepting engineering change orders. If there is an agreement, the agreement shall prevail. In the absence of a clear agreement, in principle, both the owner and the contractor must affix their official seals or have their authorized representatives sign the document. If the owner’s signature and seal are missing but the supervisory unit has affixed its seal to confirm the work volume, the objective existence of the work volume can still be acknowledged; however, the specific monetary value may need to be determined through judicial appraisal.