CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
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,
usually after the expiry of the defect liability period. 7.6 Liens or Encumbrances in the Event of Non-Payment The contractor for construction work has the right of contractor’s lien over the construction in the event of non-payment by the owner, which is senior to a mortgage or other debts. Such con - tractor’s lien is valid for up to 18 months, com - mencing from the date the construction pay - ment becomes due. The contractor’s lien may be removed if the overdue payments are made in full by the owner by voluntary payment or off - set against the negotiated sale price (between owner and contractor) of the construction, or the proceeds from the auction of the construction, ordered by a competent court. 7.7 Requirements Before Use or Inhabitation The PRC laws explicitly stipulate that no con - struction shall be delivered for use unless it passes completion acceptance. The owner must organise the geological survey contractor ( 勘察 ), designer, contractor and jianli ( 监理 ) (pro - fessional supervision engineer mainly responsi - ble for the supervision and management of the construction quality and schedule) to attend the completion acceptance inspection; and, after completion acceptance is passed, the owner must go through specific completion accept - ance filing formalities at the relevant govern - ment authorities, and obtain the Certificate of Completion Acceptance Confirmation, which may be replaced by an electronic notice from HUDA declaring that the completion acceptance has been passed, for certain small-scale non- residential construction works in some localities. In addition, in the case of a residential housing project, the PRC laws also require the Residen -
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