Affiliation is a relatively common phenomenon in the construction industry. Affiliation behaviors disrupt the normal order of the construction market, and the most crucial issue that easily triggers disputes among them is the problem of project quality. Once quality problems occur, how should the liability be borne? This is not only related to the healthy development of the construction industry but also closely linked to the safety of people's lives and property.

01 Relevant Laws and Judicial Interpretations

(1) Explicit Provisions of the "Construction Law of the People's Republic of China"

The "Construction Law" clearly stipulates that construction enterprises are prohibited from allowing other units or individuals to use their qualification certificates, business licenses, and to undertake projects in the name of the enterprise in any form.

It also stipulates that for construction projects implemented under general contracting, the quality of the project shall be the responsibility of the general contracting unit. If the general contracting unit subcontracts the construction project to other units, it shall be jointly and severally liable with the subcontracting unit for the quality of the subcontracting project. The subcontracting unit shall accept the quality management of the general contracting unit.

Although the quality liability for affiliation behaviors is not individually and explicitly specified in the legal provisions, it can be inferred from the provisions prohibiting affiliation and defining the subject of project quality liability that all parties involved in affiliation behaviors bear unshirkable liability for project quality.

(2) Relevant Provisions of the "Judicial Interpretation (I) of the Supreme People's Court on the Application of Law in the Trial of Cases Involving Disputes over Construction Engineering Contracts"

Article 7 stipulates: "Where a unit or individual lacking qualifications signs a construction engineering contract in the name of a qualified construction enterprise by borrowing its qualification, and the employer requests the lending party and the borrowing party to bear joint and several liability for compensation for losses caused by the lending of qualifications, such as unqualified quality of the construction project, the people's court shall support such request."

Article 15 stipulates: "Where a dispute arises over the quality of a construction project, the employer may institute a lawsuit with the general contractor, subcontractor and actual constructor as joint defendants."

It is not difficult to see from the above provisions that in the specific circumstance of affiliated construction, once quality problems occur in the project, the employer has the right to break through the limitation of the principle of relativity of contracts. The employer may directly list the affiliated construction enterprise and the actual affiliated constructor as joint defendants, and claim that they bear joint and several liability for compensation for project quality problems at the same time.

02 Analysis of Practical Cases

Case 1: (2020) Supreme Court Civil Application No. 4279

1. Case Facts: In this case, Chen affiliated with a construction company to undertake the construction project of a residential community. During the construction process, quality problems such as wall cracks and roof leakage occurred in some buildings. After moving in, the owners of the community found the problems and claimed compensation from the developer, who in turn demanded that the construction company and Chen bear the liability.

2. Court's View: After review, the Supreme People's Court held that although the relationship between Chen and the construction company was an affiliation relationship and the contract signed between them was invalid, in accordance with relevant laws and judicial interpretations, the construction company, as the affiliated party, was at fault for lending its qualification, and had the obligation to supervise and manage the project quality during the construction process, and could not exempt itself from external quality liability due to the internal agreement with Chen; Chen, as the actual constructor, was directly responsible for the specific construction of the project and bore direct liability for the project quality problems. Finally, it was determined that the construction company and Chen should bear joint and several liability for the project quality problems.

Case 2: (2021) Su 01 Civil Final Appeal No. 1123

1. Case Facts: Li affiliated with A Construction Company to undertake the decoration project of a commercial complex. Shortly after the completion of the decoration, the shopping mall had a serious problem of excessive formaldehyde, which affected the normal operation of the merchants. The merchants demanded compensation from the mall operator, who listed A Construction Company and Li as defendants and required them to bear the compensation liability for the losses caused by the decoration quality problems.

2. Court's View: The Intermediate People's Court of Nanjing City, Jiangsu Province held that the affiliation behavior violated the prohibitive provisions of the Construction Law, and A Construction Company, by allowing Li to affiliate with it, should bear the liability for inadequate supervision of Li's construction behavior. At the same time, Li, as the actual constructor, was directly responsible for the selection of decoration materials and construction techniques, which was the direct cause of the excessive formaldehyde quality problem. Therefore, the court ruled that A Construction Company and Li should jointly bear the compensation liability for the losses of the mall operator.

03 Specific Analysis of Liability Bearing

(I) Joint and Several Liability of the Affiliator and the Affiliated Party

In the case of affiliation, once project quality problems occur, the affiliator and the affiliated party usually bear joint and several liability.

• The affiliated party lends its qualification, enabling the unqualified affiliator to undertake the project. This behavior itself violates legal provisions and lays hidden dangers for project quality. At the same time, while collecting management fees and other benefits, the affiliated party should supervise and manage the project quality, and it is reasonable for it to be liable for quality problems due to its neglect of supervision obligations.
• The affiliator, as the actual construction subject, is directly responsible for the construction operation of the project and plays a decisive role in the quality of the project, and is undoubtedly the direct bearer of quality liability.

The establishment of joint and several liability aims to fully protect the rights and interests of the injured party due to project quality and ensure that they can obtain sufficient compensation.

(II) Liability of the Employer

The employer is not completely free from liability in project quality problems.

• If the employer, with full knowledge of the affiliation behavior, still agrees to award the project to the affiliator, then the affiliated party is usually not liable for the rights and obligations arising from the contract. A de facto relationship of rights and obligations is formed between the employer and the affiliator, and the liability for project quality problems is attributed to both parties to the contract according to the principle of fault;
• Or if the employer has fault behaviors such as providing unqualified building materials, unreasonably compressing the construction period during the project construction process, the employer shall also bear corresponding liability for project quality problems.

For example, if the cement and other main building materials provided by the employer are unqualified, even if the affiliator and the affiliated party have no fault in the construction process, it may lead to project quality problems, and the employer cannot be exempted from liability at this time.

04 Summary and Suggestions

In the current environment of vigorous development of the construction industry, affiliation behavior is like a time bomb, which seriously disrupts the market order. In particular, frequent project quality problems have become an obstacle to the development of the industry.

From a legal perspective, the "Construction Law of the People's Republic of China" explicitly prohibits affiliation behaviors, and the "Judicial Interpretation (I) on Construction Engineering" also stipulates the validity of contracts and the handling of project quality problems in the case of affiliation, emphasizing the importance of project quality and the definition of liability.

It can be seen from typical cases such as (2020) Supreme Court Civil Application No. 4279 and (2021) Su 01 Civil Final Appeal No. 1123 that once quality problems occur in the project, the affiliator and the affiliated party usually bear joint and several liability, and the employer shall also bear liability if it is at fault.

To standardize the construction market and ensure project quality, all parties shall strictly abide by laws and regulations:

• Construction enterprises should adhere to the bottom line, refuse to lend their qualifications, actively improve their own strength, and participate in market competition in a legal and compliant manner;
• Actual constructors should strive to obtain qualifications and take the path of professional development;
• Employers should strictly examine the qualifications of contractors and strengthen project supervision.

Only when all parties work together to jointly maintain the market order can the construction industry develop steadily on the track of the rule of law, and let people live in safe and secure houses.