In June 2022, the Ministry of Finance (“MOF”) and the Ministry of Housing and Urban-Rural Development (“MOHURD”) jointly released the “Circular on Improving the Methods for the Settlement of Construction Price”, which became effective on 1 August 2022.
China has long regulated the proportion of the contract price in government projects, which must be paid by way of interim progress payments. That proportion has now been increased.
More particularly, the Circular states that the proportion of construction progress payments for construction projects of governmental agencies, institutions, and state-owned enterprises shall be not less than 80% of the price of the completed project. This increases the lower limit of the 2004 requirements for progress payments to be between 60% and 90% of the contract price.
Ultimately, the proportion of the price paid by construction progress payments can be determined by the owner and the contractor, with the quality retention not exceeding 3% of the total contract price. This is on the basis that the project is implemented without exceeding the project budget and final accounts.
The measure further regulates progress payments for construction projects in China and is expected to relieve financing pressures for contractors undertaking government related construction projects.
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