CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe
and is fully accountable for aspects such as quality, safety, schedule and price; • an Engineering-Procurement (EP) arrange - ment, under which the contractor is only responsible for the engineering and procure - ment of the project, and not the construction thereof; • a Procurement-Construction (PC) arrange - ment, under which the contractor is only responsible for the procurement and con - struction of the project, and not the engineer - ing thereof; and • a Lump-Sum Turn-Key (LSTK) arrangement, under which the contractor is responsible for the engineering, procurement, construction and installation, commissioning service, and delivery of the project qualified for use. 7.3 Management of Construction Risk Construction risks may be allocated between the parties to a contract, considering factors such as bargaining power, fairness and justice. For instance, the owner may transfer the risk of price increase to the contractor by adopting the fixed lump-sum price contract, or the contractor may agree to indemnify the owner only to the extent of the total contract price. Generally, risk allo - cation arrangements are valid and recognised by the courts, provided they are not in violation of the mandatory provisions of PRC laws and administrative regulations. Furthermore, a project owner may require a con - tractor to take out and maintain project-related insurance (such as contractor’s all risks and third-party liability insurance) in favour of the owner. 7.4 Management of Schedule-Related Risk The owner and contractor generally specify a duration for work, including milestone and com -
pletion dates in the contract, and manage the work progress through the following contractual arrangements: • the contractor is required to make and update the work schedule, report in a timely manner any risks of extension of work duration, take all actions necessary to keep to the agreed schedule and pay the delay damages; • the owner has the right to terminate the con - tract in case of severe delay of the schedule; and • the circumstances under which the owner must agree to extend the duration of the con - tract must be specified. Monetary compensation may be claimed by an owner in accordance with the contract or by law, if certain milestone and completion dates are not achieved. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance In practice, the following forms of security are generally requested by the owner: • a performance bond, in the form of a bank guarantee or third-party guarantee, which is issued to the owner by the guarantor for the purpose of securing the performance of the contract by the contractor; • a payment guarantee in the form of a bank guarantee or third-party guarantee, which is issued to the subcontractors, suppliers or construction workers by the guarantor, for the purpose of securing the payment obliga - tions of the contractor under the relevant contract(s); and • retention money is an amount retained from each progress payment, which is generally released to the contractor after the contractor has fully performed its contract obligations,
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