Index of Content

MOC Is Seeking Comments on its Consultation Paper on Several Qualification Issues in relation to Decree 113 Entities

On 7 January 2005, the Ministry of Construction ("MaC") issued a Consultation Paper on the Supplemental Circular on Several Issues in relation to the Administration of Foreign-invested Construction Enterprises (the "Consultation Paper") to seek comments from the general public. The deadline for submitting comments is 20 January 2005. Lovells' unofficial English translation of this Consultation Paper is attached for your reference.

This Consultation Paper relates to a proposed MaC Supplemental Circular (the "draft Supplemental Circular") which is intended to clarify several issues with respect to qualifications for Decree 113 entities which have arisen following the implementation of recent regulations and rules issued by the MaC relating to the establishment of Decree 113 entities, including in particular Circular 159.

The draft Supplemental Circular confirms the provisions of Circular 159 which relaxed certain Decree 113 requirements by providing, first, that the off-shore project experience obtained by the foreign shareholder(s) of a Decree 113 entity will be taken into account in evaluating the track record of a Decree 113 entity and, second, that a Decree 113 entity may employ foreign service providers as long as such foreign service providers possess the equivalent experience and skill sets required for Chinese technical/management personnel. The draft Supplemental Circular supplements and clarifies these Circular 159 provisions by providing that in order to enjoy these more favourable provisions under Circular 159, the Decree 113 entity must submit certain additional specified supporting documents.

Article 1 of the draft Supplemental Circular provides that in respect of off-shore project experience listed for the purposes of satisfying the Decree 113 track record requirements, a Decree 113 entity must submit documents issued by the owners of the cited off-shore projects specifying the project's name, contractor's name, total contract price, project construction period and completion acceptance standards and materials. In addition, the Decree 113 entity must also submit excerpts from the project contract signed between the contractor and the project owner demonstrating the technical specifications of the listed projects.

With regard to the information required to prove the track record of the projects performed outside China, there should be no real difficulties for a Decree 113 entity to obtain certain documents as a practical matter, with the possible exception of the reference to standards and materials. It is not uncommon for either the owner or the supervising officer of an off-shore project to issue a reference letter for inclusion in subsequent tender submissions setting out that a contractor has completed a project. Although the owner may not be willing to provide other commercial and technical sensitive information such as the project total contract price and technical specifications of the project, the entity may supplement the information with the completion certificate (which is issued by the supervising officer in respect of most construction contracts) as well as excerpts from the contracts, provided that confidentiality agreements are being observed. It is also noted that in order for the contractor to take advantage of this relaxation, the foreign contractor should preserve adequate records to establish matters listed in Article 1 of the draft Supplemental Circular.

Article 2 of the draft Supplemental Circular provides that in order to enjoy the relaxation provided in Circular 159 in relation to the personnel requirement, a Decree 113 entity must provide supporting documents such as the diploma and working experience certificates in relation to the technical and management personnel employed by such Decree 113 entity. Regarding the expatriate project managers employed by a Decree 113 entity, in addition to the documents required for the technical/management personnel as listed above, the Decree 113 entity must also produce certificates demonstrating the project management experience gained by such expatriate project managers.

It is important to note that Article 3 of the draft Supplemental Circular provides that expatriate project managers employed by a Decree 113 entity must be verified and approved by the relevant construction authority. A list of the verified and approved expatriate project managers should be publicized by the Qualification Administration Authority. More importantly, Article 3(2) provides that the Decree 113 entity should follow the Regulations on the Administration of Construction Enterprises (MOC Decree 82) in relation to the minimum number of the expatriate project managers required for a construction enterprise. We would anticipate that this point will be further clarified by the MaC in the final draft of the Supplemental Circular. For example, Decree 82 provides that a construction enterprise with a Grade-A General Contracting Qualification in Housing Building sector must have a minimum number of 12 Grade-1 project managers. It is not clear from the draft Supplemental Circular how many of such project managers employed by a Decree 113 entity must be expatriate project managers, or whether all such 12 Grade-1 project managers employed by a Decree 113 entity can be all local project managers.

It is indicated from Article 4 of the draft Supplemental Circular that a Decree 113 entity may meet the relevant qualification conditions in terms of equipment requirement by leasing equipment from a third party. However, the Decree 113 entity must provide lease agreement or other relevant documents to prove such leasing arrangements.

Article 5 of the draft Supplemental Circular provides that the provisions under this draft Supplemental Circular shall apply to upgrading of the qualifications of Decree 113 entities. This means that for a Decree 113 entity which has obtained a lower grade qualification such as Grade-C or Grade-D, when such Decree 113 entity may take the advantage of the favourable provisions under Circular 159 and this draft Supplemental Circular to apply for upgrading of its qualification. Article 6 of the draft Supplemental Circular further provides that during the transition period from now until 1 July 2005, the Qualification Administration Authority is prepared to accept and process the qualification applications made by Decree 113 entities. Interested entities should take prompt action to take advantage of the latest Supplemental Circular upon its issuance.

In terms of the format of the documents required under this Supplemental Circular, Article 7 of the Supplemental Circular provides that all documents provided under the Supplemental Circular must be written in Chinese. If the originals are written in a foreign language, a Chinese translation must be provided and such Chinese translation must be notarized by a public notary.

In general, this Supplemental Circular of 7 January (if issued in broadly the same form as the current draft) represents a further step towards liberalization of the PRC construction market and bringing the PRC construction practice in line with international construction practice. The draft Supplemental Circular has given further clarifications as to how foreign investors can take the advantage of the relaxations set out in Circular 159. However, it is noted that some points remain to be clarified in the final version of the Supplemental Circular and there are still some requirements which foreign contractors may find it difficult to comply with.

The consultation process will end on 20 January. Foreign contractors should move quickly to voice their concerns by submitting comments to the MOC before the deadline of 20 January 2005.

Lovells Construction Newsflash
January 2005

Back to top