I. Definition of Affiliation

In the field of construction engineering, affiliation refers to the act where an actual constructor without qualifications borrows the name of a qualified construction enterprise, or a construction enterprise with low qualifications borrows the name of an enterprise with high qualifications to undertake engineering projects.

Simply put, it means that a unit or individual that does not meet the corresponding qualification requirements, through "affiliating" with a qualified enterprise, participates in a series of activities such as bidding for engineering construction projects and signing contracts in the name of that enterprise. For example, Zhang San, an individual contractor without construction qualifications, borrowed the name of a construction company with Grade I qualifications to bid for and undertake the construction project of a residential community. This is a typical affiliation behavior.

II. Identification Standards for Affiliation

(I) Inconsistency between the Contract Subject and the Actual Construction Subject

If the signing subject of a construction engineering contract is a qualified construction enterprise, but the subject actually responsible for organizing construction and investing human, material and financial resources is another subject without qualifications or with inconsistent qualification levels, this is a key factor in judging affiliation behavior.

For example, in a certain engineering project, the contract clearly shows that it is undertaken by Construction Company A, but the operators and managers at the construction site are all from Construction Team B, which has no affiliation with Company A.

(II) The Actual Constructor Bears Profits and Losses Independently

In an affiliation relationship, the actual constructor assumes sole responsibility for profits and losses. The qualified affiliated enterprise only charges a certain management fee and does not really participate in the operation, management and profit distribution of the project. If it is found that the nominal construction enterprise in a project only charges a fixed proportion of fees and does not bear responsibility for the profits and losses of the project, there may be an affiliation situation.

(III) Substantive Lack of Management Relationship

The affiliated enterprise does not implement real management over the actual constructor, including personnel management, financial management, technical management and other aspects. The actual constructor has a high degree of autonomy in the project construction, and the affiliated enterprise only performs some formal cooperation behaviors such as stamping seals, which also conforms to the characteristics of affiliation.

III. Differences Between Affiliation, Subcontracting and Internal Contracting

(I) Affiliation vs. Subcontracting

Article 7 of the stipulates: "For the purposes of these Measures, 'subcontracting' refers to the act where a contracting unit, after contracting a project, fails to perform the responsibilities and obligations agreed in the contract, and transfers all the contracted project or dismembers all the contracted project and transfers it to other units or individuals for construction in the name of subcontracting respectively."

The differences between the two are as follows:

(II) Affiliation vs. Internal Contracting

IV. Validity of Affiliation Contracts

According to Article 791 of the Civil Code of the People's Republic of China, it is clearly stipulated that contractors are prohibited from subcontracting projects to units that do not have the corresponding qualification conditions, and subcontracting units are prohibited from re-subcontracting the projects they have contracted. The construction of the main structure of a construction project must be completed by the contractor itself.

In affiliation behavior, the actual constructor undertakes the project in the name of a qualified enterprise by borrowing its name, which obviously violates the above mandatory provisions on qualification management. In accordance with Article 153 of the Civil Code, civil juristic acts that violate the mandatory provisions of laws and administrative regulations are invalid.

In addition, Article 1 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 stipulates that if an actual constructor without qualifications undertakes a project in the name of a qualified enterprise by borrowing its name, the contract is usually invalid, provided that the project owner knew the fact of borrowing qualifications when signing the contract.

If the project owner is unaware of the fact, the provisions on apparent agency in Article 172 of the Civil Code may be applied by analogy to determine the contract as valid. At the same time, in accordance with Article 149 of the Civil Code, if the project owner signs the contract under fraud, he shall have the right to revoke it.

Conclusion

Affiliation in construction engineering contracts involves many complex legal issues. Both construction enterprises and relevant practitioners should thoroughly understand these legal provisions to avoid unnecessary legal risks caused by affiliation behavior and maintain the healthy and orderly development of the construction engineering market.