China: Conflicting Legal Regimes Governing Construction Project Management In China

Last Updated: 5 May 2009

With China's continuing economic development, an increasing number of foreign companies wish to participate in the Chinese construction market, and a considerable number of foreign companies are in fact engaged in construction and design activities in China. Consequently, some foreign construction and engineering companies have acted as project managers in several large construction projects in China. Unfortunately, however, there are conflicting regulatory regimes governing project management in China. One regime is overseen by the Ministry of Housing and Urban-Rural Development ("MOHURD") as the government authority in charge of the construction industry, while another regime is controlled by the National Development and Reform Commission ("NDRC"). In this Commentary, we will analyze the two regimes and their impact on foreign companies undertaking project management services in China.

Project Management Under the Authority of MOHURD

As the government authority in charge of regulating and supervising the construction industry in China, MOHURD over the past few years has made efforts to regulate the construction project management market by issuing the "Provisional Measures on Construction Project Management" ("Circular 200") on November 16, 2004, and the "Guidance Opinion on the Establishment of Project Management Enterprises by Large-Scale Engineering Supervision Enterprises" ("Order 226") on November 12, 2008.

The Intent and Scope of Circular 200. Under Circular 200, companies can undertake project management work in China if they have qualifications in one or more of the following categories: surveying, design, construction, tendering agency, cost control, or supervision, although there is no separate qualification for "project management." This means that all enterprises undertaking project management have to hold one or more of these qualification certificates. Circular 200 also provides that project management enterprises must improve their organizational structure, establish project management systems, employ management professionals, comply with present qualification provisions, and undertake only project management within their qualification licensing scope.

Circular 200 defines "Construction Project Management" as "professional management and service activities carried out by enterprises engaged in project management at the authorization and entrustment of the project owner, throughout the works or during an individual stage." Project management may include:

  • Assisting the owner in preparatory planning, economic analysis, ad-hoc evaluations, and determination of investment—in other words, assisting the owner with feasibility studies.
  • Assisting the owner in acquiring land and obtaining planning permits.
  • Assisting the owner in acquiring and managing the design process.
  • Assisting the owner in procuring appropriate construction, equipment supply, and supervision services.
  • Assisting the owner in negotiating and executing appropriate contracts with the construction contractor as well as suppliers of building materials, equipment, structures, and fittings, in addition to assisting with supervision of their implementation.
  • Assisting the owner in managing the construction process, including budgeting, schedules, and claims management.
  • Assisting the owner with post-construction management.

Professional Personnel Requirements. Those professional personnel undertaking construction project management services are required to hold qualifications in one or more of the following categories: urban planner, architect, engineer, constructor, supervising engineer, or pricing engineer pursuant to Article 4 of Circular 200. This is in line with the company qualification requirements mentioned above, and again, there is no separate personnel qualification for "construction project managers."

The Intent and Scope of Order 226. Order 226 encourages local construction authorities to identify some large-scale engineering supervision enterprises, especially those with comprehensive supervision qualification (or Grade A level supervision qualification), as well as tendering agency and cost control qualifications, and it encourages these enterprises to establish project management companies.

The intention of the regulation is for these selected companies to undertake engineering project investment consultation, survey and design management, construction management, supervision, cost control, and tendering agency work in relation to construction and infrastructure projects. The project management companies will be contracted by the project owner, and their specific tasks will include the drafting of project feasibility study reports, management of surveying, design, procurement, construction, and implementing; testing; and taking charge of the project quality, safety, schedule, fees, contracts, information, environment, risk, etc., on behalf of the owner.

Order 226 is an indication that MOHURD tends to prefer those construction companies with supervision, cost control, and tendering agency qualifications as project management companies, and in fact some local construction authorities, e.g., the Beijing construction bureau, are only allowing companies with the above three qualifications to set up construction project management companies.

Engineering Consulting Under the Authority of NDRC

Under Chinese law, all newly invested projects (including construction projects) need to be either approved by or lodged with the NDRC or its local counterparts before any construction of a project can actually start. According to the "Provisional Regulations on the Approval of Foreign-invested Projects" ("Circular 22"), all foreign-invested projects must be approved by the NDRC or its local counterparts (for projects under US$100 million) as the first stage in governmental approval.

During the approval procedure with the NDRC or its local counterparts, a "Project Application Report"—which includes basic information, such as the scale, major construction activities, products, construction location, natural resource demand, raw material consumption, environmental influence evaluation, finance, and equipment import of the project—must be submitted to the authority. The "Project Application Report" is one of the engineering consulting documents that the NDRC or its local counterparts require for their decision-making on project approval and for the purpose of monitoring and regulating investment.

To further regulate the engineering consulting services market, NDRC issued the "Measures for Recognizing the Qualification for Engineering Consulting Entities" ("Circular 29") on March 4, 2005. Also, on March 4, 2009, NDRC issued the "Notice on the Implementation of Measures for Recognizing the Qualification for Engineering Consulting Entities" ("the Implementation Notice").

The Intent and Scope of Circular 29 and the Implementation Notice. According to Circular 29 and the Implementation Notice, any company engaging in engineering consulting services in China must legally hold an "Engineering Consulting Enterprise Qualification Certificate" issued by the NDRC and must practice within the profession and service scope stipulated by the Certificate. For the purpose of Circular 29 and the Implementation Notice, "Engineering Consulting" is defined as:

the act of providing government organs, project owners and other kinds of clients with intelligence services relating to the decision-making and execution of social economic construction and engineering projects for the purposes of enhancing the economic and social benefits, and realizing sustainable development by following the principles of independence, justice, and science, and employing multidisciplinary knowledge and experiences, modern science and technology and management skills.

The detailed engineering consulting service scope under Circular 29 and the Implementation Notice includes:

  • Planning consulting, including the formulation and consulting of industrial, special, and regional development plans.
  • Compilation of project proposals, including research on project investment opportunities and preparatory feasibility study reports.
  • Compilation of project feasibility study reports, project application reports, and fund application reports.
  • Appraisal consulting, including project proposals, feasibility study reports, project application reports, and preliminary design appraisals, post-evaluation of projects, and budget examination.
  • Engineering design.
  • Tendering agency.
  • Project supervision and equipment supervision.
  • Engineering project management, including the management services for the whole course or several phases of an engineering project, with the following subcategories:
  • overall planning, requiring planning consultation, and project feasibility study report compilation qualifications;
  • overall planning and preparation phase management, requiring planning consultation, project feasibility study report compilation, and engineering design qualifications;
  • overall planning and execution phase management, requiring planning consultation, project feasibility study report compilation, and engineering supervision (or equipment supervision) qualifications; and
  • overall management, requiring planning consultation, project feasibility study report compilation, engineering design, and engineering supervision (or equipment supervision) qualifications.

While no definition of "engineering project management" has been given in either Circular 29 or the Implementation Notice, the last three subcategories under "engineering project management," above, certainly have some overlap with "project management" as prescribed in Circular 200 by MOHURD.

Professional Personnel Requirements. Circular 29 requires that all engineering consulting companies retain a certain number of Registered Consulting Engineers, and all engineering consulting documents submitted to the NDRC need to be drafted and endorsed by one or more of these Registered Consulting Engineers.

Construction Project Investment Manager. The NDRC has also established a professional qualification system for "Construction Project Investment Managers." This was set up in 2004 for the purpose of regulating the management of construction project investment and improving project quality and investment efficiency, as well as the management skills of project management personnel. This is a separate qualification from the engineering consultation system, which recognizes "Registered Consulting Engineers" as its key professional personnel. However, to date, this qualification is not mandatory for any type of project or certification. Nevertheless, it is still an important qualification, since the service scope of a construction project investment manager clearly includes some elements of project management. For example, the service scope is as follows:

  • Planning construction project investment, participating in investment opportunity research.
  • Organizing feasibility research and project evaluation, offering suggestions.
  • Participating in and initiating financing plans.
  • Setting up management systems and working procedures for construction projects.
  • Selecting survey, design, supervision, construction, equipment installation, equipment, and material supply companies through bidding, and drafting and signing contracts in accordance with law.
  • Managing information and contracts for construction projects, managing and controlling quality, schedules, and investment to realize the proposed quality, schedule, investment, safety, and environmental protection targets.
  • Organizing production operating preparation and staff training.
  • Organizing preparation for completion tests and transferring to operation.
  • Evaluating the whole project after completion.

Thus, the service scope of "Construction Project Investment Managers" clearly has some overlap with the concept of project management as regulated in Circular 200 and Circular 29 and the Implementation Notice. The first examination for a "Construction Project Investment Managers" qualification took place in 2007, and the system is still subject to further experimentation and development by the NDRC.

Summary

It is not clear how the overlap between MOHURD's requirements under Circular 200 and the NDRC's requirements under Circular 29 and the Implementation Notice is being managed. Although it is not uncommon for there to be some ambiguities in scope of responsibility among different Chinese authorities, this duplication is far from satisfactory. On one hand, MOHURD is the authority traditionally in charge of the whole construction industry, from survey, design, and construction to supervision, cost control, and tendering agency activities, and that remains the case. On the other hand, the NDRC is in charge of all investments in fixed-assets, including planning, consultation, and evaluation throughout the entire investment process, including design, construction, and project management.

As a practical matter, neither of the two authorities require the filing of a project management contract, and for most privately funded construction projects, including foreign-funded construction projects, the owner has the freedom to engage virtually any project management company it chooses. Nevertheless, in practice, we strongly suggest that enterprises that wish to undertake project management in China apply for both the qualifications required by MOHURD and the NDRC.

We offer this suggestion because we have recently been advising a client in an arbitration where our client (an engineering consulting company with a construction qualification) was pursuing the owner for unpaid fees in relation to the project management (and other consulting) services provided by our client to the owner's project in China. The owner raised the issue of whether our client had the required project management qualification to undertake the services as a reason for not making payment under the contract. In this case, the arbitrators were confused by the conflicting regimes, and although, at the end of the day, the arbitrators did not have to address this issue, it does show that some owners might resort to "muddying the water" when disputes arise by calling into question the validity of project management qualifications.

In our view, the ambiguity of the various qualification regimes under MOHURD and the NDRC only adds to the uncertainty, and it seems to us that if companies undertaking project management are not properly qualified, there is a risk that their performance may be challenged, even where they have provided good consulting services to their clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions