On 1 July 2014, the Ministry of Housing and Urban–Rural
Development ("MOHURD") of the People's Republic of
China ("PRC") released a document entitled "Several
Opinions on Promoting Development and Reform in the Construction
Industry"
(住房城鄉建設部關於推進建築業發展和改革的若干意見
in Chinese) (the "Opinions").
In the Opinions, MOHURD anticipates the evolution of the national
construction market in a "unified, open, competitive and
orderly" manner. To this end, it proposes several rather
significant strategies to consolidate national and regional
construction policies, liberalise the domestic market and reform
the industry as a whole. The emphasis of the Opinions is to promote
the growth and enhancement of the industry by way of guaranteeing
the quality and safety of projects, upgrading the level of
engineering construction and responding to the most pressing issues
in the contemporary PRC construction market.
The Establishment of a Unified and Open Construction Market
In order to unify the PRC's construction legal regimes,
MOHURD concludes that the national laws and regulations need to be
made enforceable in all provinces and localities. In MOHURD's
view, every existing provision and practice that is not conducive
to the formation of a unified and open national construction market
and/or fair competition will be regarded as irregular and should be
abolished. Examples of such irregularities include localised market
entry barriers, bid collusion, price rigging, recontracting,
affiliated contracting and illegal subcontracting. Accordingly,
non-local enterprises should be permitted to freely access local
construction markets and be immune from certain mandatory
requirements, such as the obligation to incorporate local
subsidiaries.
The Opinions call for the modernisation of the bidding supervision
procedures, especially for non-state invested projects. Projects
should be awarded only to duly qualified contractors. Project
owners should strictly adhere to the procedures for construction
permits, quality and safety supervision. Market exclusion or
unreasonable conditions attached to the bidding of state invested
projects should be abandoned. Consequently, measures such as
electronic bidding and bid submission, public announcement of bid
winners and expert-led bidding systems should be introduced so as
to enhance the openness and transparency of the entire bidding
process. MOHURD recommends that pricing should never be the sole
consideration in determining a successful bidder.
Additionally, the Opinions state that the administrative
examination and approval system must be reformed to shift the
approach of construction qualification from one that places the
emphasis on enterprise-based qualifications to one that focuses on
practitioner-based qualifications. Existing qualification standards
and administrative provisions for engineering construction
enterprises are to be revised with certain categories being removed
or merged. New qualification standards and criteria are to be
formulated on the basis of credit standing, quality and safety of
construction corporations as well as the professional
qualifications of practitioners. The use of insurance and other
market mechanisms will be encouraged to support the concept of
"survival of the fittest" in the market.
To this end, MOHURD proposes that a unified national information
database should be established for engineering enterprises,
registered practitioners and parties to construction projects, to
assist with the dissemination of regulatory and other relevant
information. The pricing rules for different projects, industries
and regions should also be standardised.
In the context of project management, the Opinions conclude that
projects managed by qualified engineering consulting agencies
should not be subject to state supervision. Further, the scope of
projects subject to mandatory supervision should be revised.
Accordingly, MOHURD proposes that certain regions should be
selected to launch pilot programmes involving different models of
supervision or other project management models.
The activities of project owners are to be more closely regulated
so that they are held to account for any violations of standard
procedures, such as entering into "ying-yang contracts"
with contractors for tax evasion or other illegal purposes,
shortening reasonable schedules or lowering reasonable project
costs. The practice of splitting a project into several smaller
parts should also be more tightly regulated. Finally, the
involvement of cost consultants or quantity surveyors should
be emphasized to provide better project cost control.
Reinforcing Project Quality and Safety Management
The Opinions seek to strengthen the quality and safety aspects of project management through harmonising rules and regulations on survey and design quality. This will involve improving the quality inspection system and upgrading the safety supervision system. MOHURD concludes that a consolidated set of rules applicable to quality and safety control of construction projects should be established. Finally, the Opinions recommend the pilot implementation of project quality insurance to replace retention money.
Transforming the Development Model for the Construction Industry
Through the Opinions, MOHURD is seeking to modernise the current
development model for the PRC construction industry. The Opinions
propose the adoption of a model based on engineering, procurement
and construction ("EPC") for engineering construction
projects. To facilitate the use of the EPC model, public bidding
will no longer be required for design and construction services to
be provided under EPC contracts. The Opinions also advocate and
promote the adoption of building information modeling as part of
the project design and life cycle process. All of this is intended
to increase the technical capacity of the PRC construction
industry.
Additionally, MOHURD advocates better use and efficiency of labour
resources. With regard to the sourcing of technical workers, the
Opinions recommend that labour subcontracting should be the main
source of employment, whereas labour dispatching should be seen as
a temporary supplement. General contractors and specialised
contractors should have a certain number of technical workers and
should be encouraged to own or control construction labour service
enterprises.
Strengthening of Organisation and Leadership for the Development and Reform of the Construction Industry
The last section of the Opinions is devoted to reviewing the organisation and leadership of the PRC construction industry. It is recommended that government-invested projects should take a leading role in launching pilot schemes to formulate policy measures in accordance with the Opinions. Industry associations are simultaneously encouraged to set industry guidance and reference scales for non-state-invested projects.
Conclusion
The thrust and substance of the Opinions will be welcomed by the
many foreign participants in the PRC construction industry. The
promotion of EPC contracting, and the emphasis on market-oriented
mechanisms such as guarantees and insurance, bring the PRC
construction industry more into line with international standards
and norms. The abolition of market barriers should lead to a more
transparent and competitive industry and a much more stable and
consistent contracting approach across the whole country.
MOHURD should be congratulated on its far-sighted approach to
reform, but as with so many things in the PRC, the actual and
consistent implementation of the Opinions will be the real
test.
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