Lawyer's Perspective | Du Hehao: Rules for Adjudication of Disputes over EPC Contracts (Issue 40)

Du Hehao

Beijing DHH Law Firm

Senior Equity Partner

Judicial cases are an important carrier for summarizing trial experience and interpreting the spirit of the law, summarizing and extracting the gist of adjudication, and forming adjudication rules, which is an important basis for giving play to the guiding role of case handling.

In 2022, DHH's construction engineering business team continued to share the original "Adjudication Rules under the Construction General Contracting Model" by the team members, and the publication of the adjudication rules was well received by friends from all walks of life and achieved good social repercussions.

In 2023, while continuing to share the research results in the professional field of construction engineering, DHH's construction engineering business team has shared the research results on the adjudication rules for EPC contract disputes.

In 2024, DHH's construction engineering business team will continue to share the adjudication rules of construction general contracting and engineering general contracting, and share the research results of engineering subdivisions such as highway engineering, water conservancy engineering and civil aviation construction engineering with friends from all walks of life.

In this issue, we share the adjudication rules for disputes over EPC contracts (No. 40), which refers to the adjudication rules related to the project price under the validity of the EPC contract (32).

Question 64: Should the employer's refusal to bear the loss of the work on the grounds of the delay in claiming the loss of rights due to a third party be supported?

A: No. The agreement on the loss of rights to claim for overdue claims is a procedural agreement between the parties to achieve the purpose of the claim on their own. The consequence of a party's claim not being in accordance with the contract is that it cannot settle the claim on its own, but it cannot be excluded from its right to seek judicial remedies for compulsory settlement after failing to settle on its own. Even if the form of the claim submitted by the power construction company is not contractual, it does not automatically lead to the loss of its right to claim, nor does it affect the realization of the agreed purpose of the claim. The people's court shall, in accordance with the provisions of law, conduct a substantive review of the cause of the claim and the request and make a judgment. It can be understood by referring to the adjudication rules established in the case (2019) Zui Gao Fa Min Zhong No. 1356.

【Adjudication Rules】If the employer refuses to bear the loss of the right to claim for the loss of rights due to a third party, it will not be supported.

PowerChina New Energy Power Co., Ltd. (formerly Guizhou Electric Power Construction Second Engineering Company) and Guizhou Chitianhua Tongzi Chemical Co., Ltd. (Case No. (2019) Gao Gao Fa Min Zhong No. 1356).

【Brief Facts of the Case】

With the approval of the Guizhou Provincial Development and Reform Commission and other units, Chitianhua Company raised funds to build the first phase of the Tongzi Coal Chemical Base Project, which uses coal as raw material to produce 300,000 tons/year of liquid ammonia as an intermediate product and deep processing it into 520,000 tons/year final product urea and 300,000 tons/year methanol.

In November 2007, Chitianhua Company entrusted Guoxin Bidding Co., Ltd. (hereinafter referred to as Guoxin Company) to conduct bidding for the project involved in the case. In November 2007, Guoxin Company issued the bidding documents for the design, procurement and construction (EPC) of the first phase of the Tongzi Coal Chemical Industry Phase I Project of Guizhou Jinchi Chemical Co., Ltd. (hereinafter referred to as the EPC general contracting bidding documents) numbered GXTC-0732014 to bidders, including power construction companies.

The "First Chapter of the Instructions to Bidders" in the "First Business Document" of the EPC general contracting bidding documents states: (1) Contracting method: general contracting; (2) Construction period requirements: planned to start in January 2008 and completed in June 2009; (3) Source of funds: self-raised by the enterprise; (4) Scope of bidding: 3×220t/h+2×30MW self-provided thermal power workshop and coal, electricity, water utilities in the design, procurement, construction, trial operation, service (including completion acceptance) of the whole process of contracting (see technical bidding for details); (5) Project contract method: fixed total price contract.

On November 15, 2007, the power construction company obtained the bidding documents and organized the preparation of the bidding documents.

On January 8, 2008, the number GXTC-0732014 "Guizhou Jinchi Chemical Co., Ltd. Tongzi Coal Chemical Phase I Project Thermal Power and Public Works Design, Procurement, Construction (EPC) General Contracting Bidding Documents" (hereinafter referred to as the EPC General Contracting Bidding Documents) is divided into "Part I Business Part" and "Part II Technical Part". The Business Part of Part 1 is divided into three volumes.

In the "Business Part (Volume I)" of the EPC general contracting bidding documents, the "Bidding Quotation Summary Table" states that the design cost is 16554518 yuan, the project management cost is 8.28 million yuan, the procurement cost is 267908802 yuan, the construction cost is 221391676 yuan, the technical service and training fee is 4330440 yuan, and the tax fee is 3499824 yuan, totaling 521965260 yuan.

Bids were opened at 9:30 a.m. on January 10, 2008. Bid evaluation took place from 10 to 18 January 2008.

On April 25, 2008, Guoxin Company issued Guoxin Zhong [2008] (32) No. 025 "Notice of Winning the Bid" to Power Construction Company, which stated: "Guizhou Electric Power Construction Second Engineering Company: The bid evaluation work of Guizhou Jinchi Chemical Co., Ltd. Tongzi Coal Chemical Phase I Project Thermal Power and Public Works Design, Procurement and Construction (EPC) General Contracting (Bidding No.: GXTC-0732014) organized by our company has ended, and the bid evaluation committee has carefully reviewed and recommended and confirmed by the owner. Your organization is the winning bidder of the project. Please sign the contract and other related matters with the owner within 5 days after receiving the original notice. Notice is hereby given. ”

On May 29, 2008, Chitianhua Company and Power Construction Company signed an EPC general contracting contract, stipulating that Chitianhua Company would contract the "full set of main equipment and all auxiliary equipment and auxiliary equipment in the boundary area, exploration, construction drawing design, equipment and material procurement, construction and installation construction, inspection, training, trial operation and delivery, completion acceptance technical services and device performance assurance, i.e., design, procurement and construction EPC general contracting" of the first phase of Tongzi Coal Chemical Industry Project (hereinafter referred to as the "contract installation") to the power construction company.

The Contract Agreement of the EPC general contracting contract states: "Article 1 Contract Documents. 1.1 Contract Documents: The contract between the Owner and the Contractor consists of the following documents: Each document is an integral part of the complete contract, read together and understood by each other: 1. the contract agreement, 2. the contract terms and contract annexes, 3. the notice of winning the bid, 4. the clarification documents, 5. the tender documents, 6. the tender documents. 1.2 Order of priority: If there is any ambiguity or contradiction in the meaning of the above-mentioned contract documents, the other contract documents listed in Article 1.1 above shall be interpreted in priority according to the principle of interpretation in favor of the owner. The documents complement each other's explanations and explain each other.

…… Article 3 Contract Price. 3.1 The total contract price is 460436515 yuan, and the itemized price of the total contract price is detailed in Annex 14 of the contract terms. 3.2 The contract price is fixed, except for the change of the contract price caused by the change of the project or other reasons specified in the contract. 3.3 The contract price includes the full cost of the contractor to complete all the work within the scope of the contract in accordance with the provisions of the contract. The contract price includes all spare parts (excluding spare parts for two years) until the contract device is accepted by the owner and the warranty period. …… 5.1 Commencement time: The contractor shall commence construction within 7 days after the contract comes into effect. 5.2 Completion time: the contractor shall negotiate with the owner after the contract takes effect, and the mechanical completion time is September 30, 2009; Before December 31, 2009, with the whole set of trial operation of other EPC packages of the base, the completion (72h+24h) is the final completion time. ”

【Views of all parties】

The power construction company appealed, claiming that due to problems such as late data handover, defective facilities and equipment that needed to be repaired, and delayed delivery of facilities and equipment in the process of boiler installation, it requested that it be compensated for the loss of workers caused by the "adjustment of insufficient contract conditions" according to the 18099502 amount estimated by the No. 9 appraisal opinion.

Chitianhua argued that it should not be held liable for the failure of the power construction company to submit evidence to prove the "final time of the complete arrival of the three main equipment", the delay in the construction period caused by the supplier's failure to deliver the goods on time, and the failure of the power construction company to submit the claim report in the manner agreed in the contract.

【Court's View】

The Supreme People's Court held that

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About the Author

Du Hehao

Senior Equity Partner

Mr. Du Hehao has been practicing law for 24 years, and is now the director and senior partner of the construction and real estate business center of Beijing DHH Law Firm, serving as the legal counsel of a number of central enterprises and agencies, and has represented hundreds of contract dispute cases such as construction projects.

Mobile: [phone]

E-mail: [email protected]