Building law and regulation in China during Covid-19

Various local urban and rural construction departments in Mainland China have introduced construction-relevant COVID-19 measures. For example, Shanghai has issued guiding opinions on the "Performance of Construction Project Contracts" during the COVID-19 epidemic on February 28, 2020 (hereinafter referred to as "Shanghai Rules").

Various provinces and cities have issued support policies which also grant subsidies to contractors. For example, the Shenzhen Futian District Housing and Construction Bureau grants subsidies to construction enterprises amounting to 500 RMB for each worker (maximum number of workers 200, maximum amount 10,000 RMB for each construction site) subject to certain conditions.

According to Art. 117 Chinese Contract Law, force majeure refers to the objective circumstances that are unforeseeable, unavoidable and insurmountable. Where a contract cannot be performed, the liabilities shall be exempted (in part) in light of the effects of the force majeure. In general, the effects of COVID-19 shall be deemed as force majeure. However, based on the legal praxis in the PRC, the evaluation of the effects of force majeure are determined by the competent courts on a case by case basis.

As an example, the Shanghai Rules clarifies the treatment of increased construction costs caused by the impact of COVID-19 as follows:

Any losses resulting from stoppage of work and increased construction costs shall be handled according to the construction project contract, or if the contract is unclear or lacks relevant clauses in this regard, the relevant parties shall reasonably share the losses and costs in accordance with the principle of fairness.

If losses result from shutdowns and increased costs occur in terms of labor, materials and machinery etc., which makes it difficult to perform the contract, the parties shall apply special statutory pricing regulations and enter into a supplementary agreement.

Charges such as masks, thermometers, disinfection items, temporary isolation rooms and other epidemic prevention facilities, prevention and control personnel charges, etc., may be included in the construction costs.

If the contractor is required to continue construction works, the contractor shall redraw the relevant time schedule in accordance with the statutory provisions to ensure the quality and safety of the construction project. The cost incurred as a result of the rush to continue construction works shall be borne by the contractor.

In general, the parties shall negotiate and agree on a reasonable extension of the construction period, unless otherwise agreed in the relevant construction contract.

A party to the construction project contract is generally not entitled to terminate due to COVID-19. According to Art. 94 Chinese Contract Law, a termination right based on force majeure is only recognized, if the purpose of the contract is rendered impossible to achieve.

Please see our answers to questions No. 3 and 4.

General Recommendations:

• Pay timely attention to notices of the government. 
• Collect supporting certificates, e.g. market price documents for leasing of construction materials and equipment issued by the competent governmental department during the epidemic, or a Force Majeure – Certificate issued by the China Council for the Promotion of International Trade (CCPIT).
• Establish a joint epidemic prevention and internal isolation mechanism.
• Arrange personnel for prevention and control management and safety education.