September 2026
The Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Disputes over Construction Project Contracts (II) (Mainland China)
On June 30, 2026, the Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Disputes over Construction Project Contracts (II) (Judicial Interpretation No. 12 of 2026, hereinafter referred to as the Official Version) entered into force. Compared with the Exposure Draft released in November 2025, the two versions contain multiple fundamental changes in legislative orientation, adjudication standards and rights‑protection approaches.
Relative to the Exposure Draft, the Official Version removes multiple lenient‑oriented provisions, narrows judicial tolerance for various irregular practices in the construction market, and reverts to mandatory statutory provisions and the doctrine of privity of contract.
I. Deletion of qualification exemption provisions.
Article 3 of the Exposure Draft is deleted in the Official Version. The Exposure Draft had proposed qualification‑exception rules for labor subcontracting and small‑scale home‑renovation projects, under which lack of qualifications would not invalidate contracts under specific circumstances. Such rules carried risks of abuse and circumvention of the mandatory qualification requirements under the Construction Law of the People’s Republic of China. The Official Version rejects such exemption design and reverts to the original validity‑determination rules: where a contractor lacks corresponding construction‑enterprise qualifications for construction projects, decoration‑and‑fit‑out works or labor subcontracting projects, the construction contract shall be held invalid in accordance with law. This measure fundamentally regulates unlicensed construction and illegal subcontracting.
II. Removal of exclusive valuation rules for design‑change consideration.
The Exposure Draft had set separate adjudication criteria for incremental works and design alterations, which indirectly lessened the burden of proof borne by contractors. The Official Version abolishes such special rules and assigns the full evidential burden for payment claims arising from additional quantities of work and design changes to contractors. Without supporting evidence such as written certification confirmations or mutually‑acknowledged documents, contractors’ claims for additional project payment are unlikely to be sustained due to insufficient evidence. This compels construction entities to strengthen retention of on‑site certification records and construction documentation.
III. Elimination of exclusive‑jurisdiction clauses for labor subcontracting.
The Exposure Draft subjected labor‑subcontracting disputes to real‑estate‑related exclusive jurisdiction for construction projects. Divergent adjudication practices across courts had given rise to jurisdictional disputes. The Official Version repeals this special provision. Labor‑subcontracting disputes are no longer mandatorily governed by exclusive jurisdiction at the project location; general contract jurisdiction rules shall apply. Parties may select a competent court by written agreement. In the absence of such agreement, jurisdiction shall vest in the people’s court at the defendant’s domicile or at the place of contract performance. This clarifies jurisdictional boundaries between labor‑subcontracting contracts and construction‑project contracts and unifies judicial adjudication standards.
Among the amended retained provisions, three core revisions in the Official Version, as compared with the Exposure Draft, have directly reshaped the litigation landscape for construction‑project disputes.
I. Restructured remedies for actual constructors.
Whereas the Exposure Draft permitted actual constructors to sue project owners directly, the Official Version completely repeals this exception to privity of contract. Actual constructors may only sue their immediate upper‑tier contractors. If the project owner is in arrears with project payments, the actual constructor must file a separate creditor’s subrogation action and adduce evidence proving that the contractor has neglected to assert its claims, substantially increasing evidential hurdles. Special relief is preserved solely for migrant‑worker wages: workers may directly sue general contractors and project‑owning entities for advance payment of wages.
II. Unified commencement point for quality‑guarantee deposit.
Article 14 of the Official Version (corresponding to Article 15 of the Exposure Draft) adjusts the commencement rule for refund of the quality‑guarantee deposit where contractors withdraw mid‑project. The Exposure Draft drew distinctions based on contract validity: where a contract was rescinded, the clock started upon contractor withdrawal; where a contract was invalid and the contractor had withdrawn, the start date was exceptionally set as the effective date of the judgment. The Official Version deletes this exception and uniformly sets the date of the contractor’s withdrawal from site as the commencement date for the quality‑guarantee‑deposit refund period. If withdrawal occurs before contract rescission, the commencement date shall be the date of contract rescission. This revision is anchored on the transfer of site possession and control, decoupling from the timeline of judicial findings on contract validity, and prevents prolonged warranty liabilities driven by protracted litigation.
III. Narrowed scope of the priority of compensation for project payment.
The Exposure Draft had included wage‑losses stemming from work stoppage corresponding to migrant workers within the scope of priority‑for‑compensation claims. Article 17 of the Official Version deletes this provision. Only the principal amount of project payment enjoys priority of compensation; interests, liquidated damages and losses from work stoppage shall be treated as ordinary claims.
In addition, the Official Version adds two innovative regulatory provisions. First, statutory time‑limit for government‑fiscal audits (Article 13). To address the long‑standing industry grievance of delayed audits and protracted non‑payment for government‑invested projects: where a contract stipulates that settlement shall be based on audit or fiscal‑evaluation conclusions and no audit time‑limit is agreed by parties, the reasonable time limit for such audit or fiscal evaluation shall not exceed one year from the date on which the contractor submits the completion‑and‑settlement documents. If no conclusion is issued within the period for reasons not attributable to the contractor, the contractor may apply for judicial appraisal of project costs. This effectively tackles the practice of “substituting audit for judicial settlement”. Second, civil‑administrative‑criminal case‑connecting mechanism (Article 22). Where people’s courts, in hearing construction‑project cases, detect illegal conduct such as qualification‑renting, unqualified construction or severe hidden safety hazards in project quality, they shall transfer relevant clues to competent construction‑administrative authorities for administrative penalties. Where criminal suspicion arises, clues shall be referred to investigative organs. This enables effective linkage of civil, administrative and criminal accountability.
Based on the above, departing from the lenient and inclusive orientation of the Exposure Draft, the Official Version is marked by retrenchment of leniency, normalization of compliance and strengthened liability. It imposes new requirements for compliance governance and litigation strategies for all stakeholders in the construction sector.
Relative to the Exposure Draft, the Official Version removes multiple lenient‑oriented provisions, narrows judicial tolerance for various irregular practices in the construction market, and reverts to mandatory statutory provisions and the doctrine of privity of contract.
I. Deletion of qualification exemption provisions.
Article 3 of the Exposure Draft is deleted in the Official Version. The Exposure Draft had proposed qualification‑exception rules for labor subcontracting and small‑scale home‑renovation projects, under which lack of qualifications would not invalidate contracts under specific circumstances. Such rules carried risks of abuse and circumvention of the mandatory qualification requirements under the Construction Law of the People’s Republic of China. The Official Version rejects such exemption design and reverts to the original validity‑determination rules: where a contractor lacks corresponding construction‑enterprise qualifications for construction projects, decoration‑and‑fit‑out works or labor subcontracting projects, the construction contract shall be held invalid in accordance with law. This measure fundamentally regulates unlicensed construction and illegal subcontracting.
II. Removal of exclusive valuation rules for design‑change consideration.
The Exposure Draft had set separate adjudication criteria for incremental works and design alterations, which indirectly lessened the burden of proof borne by contractors. The Official Version abolishes such special rules and assigns the full evidential burden for payment claims arising from additional quantities of work and design changes to contractors. Without supporting evidence such as written certification confirmations or mutually‑acknowledged documents, contractors’ claims for additional project payment are unlikely to be sustained due to insufficient evidence. This compels construction entities to strengthen retention of on‑site certification records and construction documentation.
III. Elimination of exclusive‑jurisdiction clauses for labor subcontracting.
The Exposure Draft subjected labor‑subcontracting disputes to real‑estate‑related exclusive jurisdiction for construction projects. Divergent adjudication practices across courts had given rise to jurisdictional disputes. The Official Version repeals this special provision. Labor‑subcontracting disputes are no longer mandatorily governed by exclusive jurisdiction at the project location; general contract jurisdiction rules shall apply. Parties may select a competent court by written agreement. In the absence of such agreement, jurisdiction shall vest in the people’s court at the defendant’s domicile or at the place of contract performance. This clarifies jurisdictional boundaries between labor‑subcontracting contracts and construction‑project contracts and unifies judicial adjudication standards.
Among the amended retained provisions, three core revisions in the Official Version, as compared with the Exposure Draft, have directly reshaped the litigation landscape for construction‑project disputes.
I. Restructured remedies for actual constructors.
Whereas the Exposure Draft permitted actual constructors to sue project owners directly, the Official Version completely repeals this exception to privity of contract. Actual constructors may only sue their immediate upper‑tier contractors. If the project owner is in arrears with project payments, the actual constructor must file a separate creditor’s subrogation action and adduce evidence proving that the contractor has neglected to assert its claims, substantially increasing evidential hurdles. Special relief is preserved solely for migrant‑worker wages: workers may directly sue general contractors and project‑owning entities for advance payment of wages.
II. Unified commencement point for quality‑guarantee deposit.
Article 14 of the Official Version (corresponding to Article 15 of the Exposure Draft) adjusts the commencement rule for refund of the quality‑guarantee deposit where contractors withdraw mid‑project. The Exposure Draft drew distinctions based on contract validity: where a contract was rescinded, the clock started upon contractor withdrawal; where a contract was invalid and the contractor had withdrawn, the start date was exceptionally set as the effective date of the judgment. The Official Version deletes this exception and uniformly sets the date of the contractor’s withdrawal from site as the commencement date for the quality‑guarantee‑deposit refund period. If withdrawal occurs before contract rescission, the commencement date shall be the date of contract rescission. This revision is anchored on the transfer of site possession and control, decoupling from the timeline of judicial findings on contract validity, and prevents prolonged warranty liabilities driven by protracted litigation.
III. Narrowed scope of the priority of compensation for project payment.
The Exposure Draft had included wage‑losses stemming from work stoppage corresponding to migrant workers within the scope of priority‑for‑compensation claims. Article 17 of the Official Version deletes this provision. Only the principal amount of project payment enjoys priority of compensation; interests, liquidated damages and losses from work stoppage shall be treated as ordinary claims.
In addition, the Official Version adds two innovative regulatory provisions. First, statutory time‑limit for government‑fiscal audits (Article 13). To address the long‑standing industry grievance of delayed audits and protracted non‑payment for government‑invested projects: where a contract stipulates that settlement shall be based on audit or fiscal‑evaluation conclusions and no audit time‑limit is agreed by parties, the reasonable time limit for such audit or fiscal evaluation shall not exceed one year from the date on which the contractor submits the completion‑and‑settlement documents. If no conclusion is issued within the period for reasons not attributable to the contractor, the contractor may apply for judicial appraisal of project costs. This effectively tackles the practice of “substituting audit for judicial settlement”. Second, civil‑administrative‑criminal case‑connecting mechanism (Article 22). Where people’s courts, in hearing construction‑project cases, detect illegal conduct such as qualification‑renting, unqualified construction or severe hidden safety hazards in project quality, they shall transfer relevant clues to competent construction‑administrative authorities for administrative penalties. Where criminal suspicion arises, clues shall be referred to investigative organs. This enables effective linkage of civil, administrative and criminal accountability.
Based on the above, departing from the lenient and inclusive orientation of the Exposure Draft, the Official Version is marked by retrenchment of leniency, normalization of compliance and strengthened liability. It imposes new requirements for compliance governance and litigation strategies for all stakeholders in the construction sector.
The contents of all newsletters of Shanghai Lee, Tsai & Partners (Content) available on the webpage belong to and remain with Shanghai Lee, Tsai & Partners. All rights are reserved by Shanghai Lee, Tsai & Partners, and the Content may not be reproduced, downloaded, disseminated, published, or transferred in any form or by any means, except with the prior permission of Shanghai Lee, Tsai & Partners.
The Content is for informational purposes only and is not offered as legal or professional advice on any particular issue or case. The Content may not reflect the most current legal and regulatory developments. Shanghai Lee, Tsai & Partners and the editors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The contributing authors' opinions do not represent the position of Shanghai Lee, Tsai & Partners. If the reader has any suggestions or questions, please do not hesitate to contact Shanghai Lee, Tsai & Partners.
