Foreword

In 2020, the Ministry of Housing and Urban-Rural Development and the People’s Bank of China proposed the “Three Red Lines” policy during a symposium. In 2021, the Ministry of Natural Resources further issued the “Two Concentrations” policy. Compounded by the impact of the COVID-19 pandemic, the real estate industry entered a period of deep adjustment, and the traditional heavy-asset development model faced difficulties. Meanwhile, agent construction, as a light-asset model, gradually gained market favor. From 2021 to 2024, the number of agent construction enterprises surged from fewer than 30 to over 100. The newly signed agent construction floor area exceeded 100 million square meters for the first time in 2022, grew to 170 million square meters in 2023 (a growth rate of 53%), and further surpassed 200 million square meters in 2024. However, with the influx of real estate enterprises, the agent construction management fee rate has generally dropped from the early 5%-6% to below 2%. Coupled with the deterioration of the commissioning party’s solvency and the lengthened collection cycle for agent construction fees, the industry has rapidly slid from a blue ocean to a red ocean.

Against this backdrop, the legal issues of the agent construction model have become increasingly prominent. Currently, China has not yet provided a clear definition of “agent construction,” and the legal nature of the entrusted agent construction contract remains highly controversial in both academic circles and judicial practice. Moreover, there is no consensus on whether the construction cost payer should be the agent constructor or the principal. Accordingly, the author writes this article to conduct a practical discussion on the legal nature of the contract under the agent construction model and the responsible subject for payment, aiming to provide reference for the handling of similar disputes.

I. Legal Nature of the Entrusted Agent Construction Contract

Before discussing the legal nature of the contract under the agent construction model, it is necessary to first clarify the two layers of contractual relationships involved in the current agent construction model in China. The first layer is the entrusted agent construction contract entered into by the investor, the agent constructor (in practice, a third party, i.e., the user, may also appear), whereby the investor entrusts the agent constructor to organize the construction and manage the funds for the construction project, and after completion, deliver it to the investor or user as agreed. The second layer is the construction project construction contract entered into by the agent constructor and the constructor, where the agent constructor, as the proprietor, contracts out the agent construction project in its own name to the contractor for completion.

Thus, an entrusted agent construction project typically forms two independent legal relationships: one is the contractual relationship formed between the construction unit and the agent construction unit based on the entrusted agent construction contract; the other is the construction contract relationship between the agent construction unit and the construction unit. The latter is a nominate contract with relatively clear legal relationships, which will not be the focus of this article. The nature of the former contract lacks a unified understanding in academia and presents multiple adjudicative views in judicial practice, as discussed below:

(I) The Entrusted Agent Construction Contract Belongs to a Commission Contract

Pursuant to Articles 161, 162, and 919 of the Civil Code of the People’s Republic of China (hereinafter referred to as the “Civil Code”), a commission contract is a contract whereby the principal and the agent agree that the agent shall handle the affairs of the principal. The entrusted agent construction contract shares similarities with this: the principal entrusts the agent constructor with affairs related to project construction (such as survey, design, construction, etc.), the agent constructor completes the agent construction tasks as agreed, and the principal does not personally participate in project construction management. Accordingly, some viewpoints consider that the entrusted agent construction contract possesses the legal characteristics of a commission contract.

The Supreme People’s Court, in its case [(2019) Supreme People’s Court Civil Application No. 1075], held that “the second-instance judgment found that Zhongding Company and Junliangcheng Company had a commission relationship, and, by reference to the agreement in the ‘Cooperation Agreement’ to ‘calculate based on actual construction cost,’ it was not improper to use Junliangcheng Company’s external expenses for the project involved as the basis for determining the amount of agent construction fees.” In the case [(2020) Supreme People’s Court Civil Final No. 848], the Supreme People’s Court also explicitly stated that the relevant legal provisions on commission contracts should apply.

(II) The Entrusted Agent Construction Contract Belongs to a Real Estate Development and Operation Contract

In the Causes of Civil Action Provisions (2025), disputes over agent construction contracts are listed as a separate cause of action, alongside disputes over joint venture or cooperative development of real estate contracts and disputes over project assignment contracts, under the category of real estate development and operation contract disputes. Accordingly, some viewpoints consider that the entrusted agent construction contract belongs to a real estate development and operation contract.

The Higher People’s Court of Jilin Province, in its case [(2020) Ji Min Zhong No. 241], held that “the ‘Civil Cause of Action Provisions’ issued by the Supreme People’s Court classifies disputes over entrusted agent construction contracts under real estate development and operation contract disputes, parallel to commission contract disputes. It can be seen that the entrusted agent construction contract is different from ordinary commission contracts. In an entrusted agent construction contract, when the agent constructor disputes with a third party due to exercising entrusted management affairs, the third party generally should assert rights against the agent constructor.” Meanwhile, the Supreme People’s Court, in its case [(2021) Supreme People’s Court Civil Application No. 1212], shared the same view as the Jilin Higher People’s Court, holding that “the contract involved has the nature of real estate development and operation and is different from an ordinary commission contract.”

(III) The Entrusted Agent Construction Contract Belongs to a Work Contract

Judge Wang Yuying of the Supreme People’s Court, in the article “The Difference Between an Agent Construction Contract and a Pre-sale Commercial Housing Contract,” proposed: “The essence of an agent construction contract is a work contract.” The reason is that, according to Article 770 of the Civil Code, a work contract is a contract whereby the contractor completes work and delivers the work results in accordance with the requirements of the client, and the client pays remuneration. Under the entrusted agent construction model, the agent constructor completes the construction work according to the client’s requirements and ultimately delivers the construction results to the client. This is the commonality between the entrusted agent construction contract and the work contract.

(IV) The Author’s Viewpoint

In summary, since the entrusted agent construction contract is not explicitly provided for in the Civil Code, its legal nature is highly controversial in both theory and practice. If it is one-sidedly considered that the entrusted agent construction contract falls under a certain type of nominate contract, it would mean that the contract must also follow the relevant legal provisions and academic concepts of that type of nominate contract, which may contradict the parties’ expressions of intent when entering into the contract. Moreover, the subject matter of disputes under the entrusted agent construction model is an engineering project, involving multiple parties’ rights and interests, and the determination of legal relationships should be more prudent. Accordingly, the author believes that the entrusted agent construction contract does not belong to any of the above nominate contracts and should be recognized as an independent innominate contract. The reasons are as follows:

1. Reasons for Not Recognizing It as a Commission Contract

In judicial practice, most courts tend to recognize the entrusted agent construction relationship as a civil commission agency relationship, i.e., a commission contract. However, there are essential differences between the two: First, in a general commission contract, when the agent handles affairs in the principal’s name, the consequences are borne by the principal. In an entrusted agent construction contract, the agent constructor contracts out the project to the constructor in its own name, and the benefits and risks arising therefrom are, in principle, borne by the agent constructor itself. Second, in a general commission contract, both parties have the right to terminate at will. However, if the entrusted agent construction contract were similarly subject to the right of termination at will, it would affect the order and safety of project transactions, as agent construction projects often involve multiple interests. Third, according to civil law theory, a commission contract is a “debt of means,” requiring only that the agent handle affairs as agreed, without necessarily requiring the completion of a result. A work contract is a “debt of result,” requiring the completion of work as an element. Considering this characteristic, the entrusted agent construction contract is closer to a work contract.

2. Reasons for Not Recognizing It as a Work Contract

If the entrusted agent construction contract were recognized as a work contract, it would have to meet the constituent elements of a work contract. According to Article 772 of the Civil Code, the contractor shall complete the main work using its own equipment, technology, and labor. However, in an entrusted agent construction contract, the agent constructor is only responsible for selecting the constructor and supervising the construction activities. It does not itself need to possess construction qualifications or construction capabilities, which is inconsistent with the core characteristics of a work contract.

3. Reasons for Not Recognizing It as a Real Estate Development and Operation Contract

If it is argued that the entrusted agent construction contract is a real estate development and operation contract, the reason is that there are explicit provisions in the Causes of Civil Action Provisions (2025). However, the cause of action is designed to facilitate parties in civil litigation and to standardize the work of people’s courts in civil case filing, trial, and judicial statistics. Determining the nature of the entrusted agent construction contract solely based on the classification of causes of action clearly lacks sufficient persuasiveness.

Therefore, although the entrusted agent construction contract shares certain similar characteristics with commission contracts, work contracts, and real estate development and operation contracts, from a legal nature perspective, it should be an independent innominate contract. Furthermore, considering that an overall assessment of the entrusted agent construction contract may not fully correspond to the nominate contracts of the Civil Code, classifying it as an innominate contract still fails to resolve substantive disputes. Therefore, the author believes that one should not attempt to make a “one-size-fits-all” unified determination of the nature of the entrusted agent construction contract. Instead, the legal relationship between the parties should be comprehensively judged based on the rights and obligations stipulated in the specific contract, and the applicable legal norms should be determined accordingly. At the same time, in practice, attention should be paid to the judicial views in the region where the dispute is located, and legal interpretation methods combined with case analysis should be used to propose more targeted reasoning arguments.

II. Analysis of the Responsible Subject for Construction Cost Payment under the Agent Construction Model

Regarding the issue of the subject responsible for paying construction costs under the entrusted agent construction model, there is still significant controversy in practice. The core dispute is whether the obligation to pay construction costs should be borne by the construction unit (the principal), by the contractual counterparty (the agent constructor), i.e., the agent, or by both parties jointly. Accordingly, the author summarizes the mainstream views in judicial practice and attempts to analyze them as follows.

(I) Principle: Construction Costs Are Paid by the Agent; the Principal Generally Does Not Bear Payment Responsibility

According to the principle of privity of contract, unless otherwise agreed, the principal does not assume the obligation to pay construction costs under the construction project construction contract. This is because the entrusted agent construction contract and the construction project contract are two independent contracts and belong to different legal relationships.

Several higher people’s courts’ judicial documents adopt this position. Fujian Higher People’s Court’s Answers to Difficult Issues in Construction Project Contract Disputes (2022), Point 10: “Entrusted agent construction is a commission contract relationship between the principal and the agent. The agent and the contractor are in a construction project construction contract relationship. Generally, the contractor has no right to claim construction project price from the principal, and the principal has no right to claim repair or compensation for losses from the contractor.” Similarly, Guangdong Higher People’s Court’s Answers to Difficult Issues in Trial of Construction Contract Disputes (2017), Point 12, and Quanzhou Intermediate People’s Court’s Summary of Presiding Judge Meetings on Trial of Construction Project Contract Disputes (2021), Point 8, all adopt the above view.

The Supreme People’s Court, in its case [(2021) Supreme People’s Court Civil Application No. 3230], held that: “The relationship between Caijin College and the Provincial Development Company was an entrusted agent construction contract relationship, and the relationship between the Provincial Development Company and Xinxing Company was a construction project construction contract relationship. The Provincial Development Company’s claim that Caijin College participated in the management of the construction of the project involved was consistent with the agreement on the rights and obligations of Party A in the ‘Entrusted Agent Construction Agreement’ between the Provincial Development Company and Caijin College. The second-instance judgment correctly held that Caijin College was not the counterparty to the construction project construction contract and that the Provincial Development Company, as the proprietor of the project involved, should bear the responsibility for paying construction costs to Xinxing Company. This was not improper.” In the case [(2017) Supreme People’s Court Civil Final No. 579], the Supreme People’s Court further clarified: “Although the project involved in this case was entrusted to Traffic Company for agent construction by Chengtong Company, the entrusted agent construction legal relationship between Chengtong Company and Traffic Company is independent from the construction project construction contract relationship and the design contract relationship established between Traffic Company and China Construction First Bureau.”

Accordingly, the Supreme People’s Court and several higher people’s courts tend to hold in judicial practice that, based on the principle of privity of contract, the subject responsible for payment is, in principle, the agent constructor who signed the construction contract.

(II) Exception: The Contractor May Claim Payment Responsibility from the Principal

1. If the Contractor Knew of the Entrusted Agent Construction Relationship at the Time of Contracting, It May Request the Principal to Bear Payment Responsibility

According to the second half of Fujian Higher Court’s Q&A on Construction Issues Point 10: “If there is evidence to prove the circumstances provided in Article 925 of the Civil Code, the contractor has the right to claim the construction project price from the principal, and the principal has the right to claim repair or compensation for losses from the contractor.” The Sixth Circuit Court of the Supreme People’s Court, in its compiled Adjudication Rules of the Sixth Circuit Court of the Supreme People’s Court, also pointed out: “Where the agent constructor enters into a construction contract with the contractor in its own name within the scope of authority granted by the principal, and the contractor knew of the agent construction relationship between the agent constructor and the principal at the time of entering into the contract, then, in accordance with Article 925 of the Civil Code, the construction contract directly binds the principal and the contractor; however, this does not apply if there is conclusive evidence that the contract binds only the agent constructor and the contractor.”

The Supreme People’s Court adopted this view in its case [(2020) Supreme People’s Court Civil Final No. 848]: “Shenhua Company and Longrun Company entered into an entrusted agent construction agreement, with Shenhua Company as the principal and Longrun Company as the agent constructor. Longrun Company, as the agent constructor, disclosed the principal’s identity to Wuye Company. In accordance with Article 403 of the Contract Law of the People’s Republic of China, Wuye Company could choose either the agent constructor or the principal as the counterparty to assert its rights.”

This view recognizes the entrusted agent construction legal relationship as a commission agency legal relationship. If the contractor knew of the agent construction relationship between the principal and the agent at the time of entering into the construction contract, and the construction project construction contract does not explicitly stipulate that the contract binds only the signing parties, the contractor may invoke the provisions on undisclosed agency under Article 925 of the Civil Code to request the principal to bear payment responsibility.

2. If the Principal and the Agent Constructor (and the User) Jointly Act as the Proprietor in Entering into a Contract with the Contractor, or if the Principal Substantially Participates in the Performance of the Construction Contract, the Contractor May Also Request the Principal to Assume Responsibility

The Sixth Circuit Court of the Supreme People’s Court, in its Answers to Difficult Issues in Trial Practice of Construction Project Disputes, held: “If there is no agreement on the obligor for the payment of the project price in the agent construction legal relationship, and where the principal (construction unit), the agent constructor, and the user jointly act as the proprietor in signing the construction project contract with the contractor, then the principal (construction unit), the agent constructor, and the user shall jointly bear the obligation to pay the project price to the contractor.”

The Supreme People’s Court also supported this position in its case [(2019) Supreme People’s Court Civil Application No. 3890]. In that case, the court held: “First, this case involves two contractual relationships: one is the entrusted agent construction contract relationship between China Urban Construction Anhui Company and Huainan City Investment Company; the other is the construction project construction contract relationship between China Urban Construction Anhui Company, Huainan City Investment, Huainan Government Affairs Center, and Zhongcheng Investment Sixth Bureau… China Urban Construction Anhui Company, Huainan City Investment, and Huainan Government Affairs Center all signed the ‘Construction Project Construction Contract’ with Zhongcheng Investment Sixth Bureau as proprietors… The ‘Construction Project Construction Contract’ did not stipulate that Huainan City Investment and Huainan Government Affairs Center were not required to bear payment obligations to the contractor… Therefore, this cannot be used to exempt Huainan City Investment and Huainan Government Affairs Center from their obligation to pay project funds under the ‘Construction Project Construction Contract.’”

Furthermore, in the case [(2020) Supreme People’s Court Civil Application No. 5614], the Supreme People’s Court held: “The court of original trial correctly determined that Energy Group, through its performance of acts such as overall planning of the project, supervision and management of project quality, selection and confirmation of the review report of the project cost audit unit, and payment of project funds, had actually joined the legal relationship of the construction project construction contract involved, and the judgment that Energy Group should jointly pay the project funds was not improper. Energy Group’s claim that it was not a counterparty to the construction project construction contract and should not bear responsibility for the project funds was untenable.”

In summary, if the principal and the agent constructor jointly participate in signing the construction agreement as the proprietor, and the construction agreement does not specify the paying party, or if the principal substantially participates in or actually joins the construction project construction contract legal relationship between the agent constructor and the contractor, the contractor has the right to directly claim project funds from the principal.

(III) The Author’s Viewpoint and Summary

As mentioned above, there is still some controversy regarding the subject responsible for paying construction costs in the construction project contract under the entrusted agent construction model. The core of the controversy is whether the contractor can breach privity of contract to claim rights against the principal. In this regard, the author believes that, in principle, the fundamental civil law theory of privity of contract should be followed, and the subject responsible for payment should be the agent constructor who signed the construction contract. Only under circumstances that meet statutory or agreed conditions may the contractor be exceptionally allowed to claim rights against the principal.

Judge Feng Xiaoguang of the Supreme People’s Court, in the article “Retrospect and Prospect – Written on the Third Anniversary of the Promulgation and Implementation of the Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in the Trial of Disputes over Construction Project Construction Contracts,” pointed out: “The entrusted agent construction contract and the construction contract are two independent legal relationships. In principle, when hearing disputes over construction project construction contracts, it is inappropriate to add the principal as a party to the case or to order the principal to assume joint and several liability for the project arrears owed by the proprietor.” This view strictly adheres to the principle of privity of contract and does not arbitrarily allow parties to breach privity of contract to directly claim rights against the principal. Moreover, this view is more consistent with the purpose of establishing the entrusted agent construction system, where the principal (construction unit) only needs to perform its obligations towards the agent constructor in accordance with the entrusted agent construction contract, and all parties should strictly abide by privity of contract to regulate their respective rights and obligations.

However, from the latest views of the Sixth Circuit Court of the Supreme People’s Court, judicial practice shows a trend towards protecting the interests of contractors, i.e., allowing the contractor to breach privity of contract and request the principal to bear payment responsibility when specific conditions are met (such as the contractor’s knowledge of the commission relationship, the principal’s joint signing, or actual participation in performance, etc.).

Conclusion

This article summarizes the two core practical issues under the entrusted agent construction model as follows:

1. Regarding the Legal Nature of the Contract: The entrusted agent construction contract is not explicitly provided for as a nominate contract in the Civil Code. Although it shares similar characteristics with commission contracts, work contracts, and real estate development and operation contracts, it does not completely fit any of them. In practice, a “one-size-fits-all” unified determination is inappropriate. Instead, the legal relationship should be comprehensively judged based on the rights and obligations stipulated in the specific contract, and attention should be paid to the judicial views in the region where the dispute is located.

2. Regarding the Subject Responsible for Payment: In principle, the principle of privity of contract should be followed, and the agent constructor who signed the construction contract should bear the payment responsibility. However, under two exceptional circumstances, the contractor may breach privity of contract to claim rights against the principal: First, if the contractor knew of the entrusted agent construction relationship at the time of contracting, it may request the principal to bear responsibility in accordance with Article 925 of the Civil Code. Second, if the principal jointly signed the contract or actually joined the legal relationship of the construction contract through actions.

Practical Suggestions: All parties should clearly stipulate the rights, obligations, and the subject responsible for payment in the agent construction contract. When a dispute arises, the object and path of the claim should be carefully determined based on the specific agreements and performance circumstances.

References:

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